Short Essay Scenario 1 (Relates Q3-06) Assume that the aggregate supply curve is upward sloping as nominal wages are sticky in the short n But in the long run, wages are flexible to simulate an economy in which the aggregate supply curve is vertical. Currently, the economy is at full employment. Suddenly, due to an infectious disease, many factories are closed. Explain how prices and output in this economy would change in the short run and in the long run. Diagram/s are required to aid your explanation. Type words in the response section below. Submit the diagram(s) as Question 4.
Short Essay Scenario 1 (Relates Q3-06) Assume that the aggregate supply curve is upward sloping as nominal wages are sticky in the short n But in the long run, wages are flexible to simulate an economy in which the aggregate supply curve is vertical. Currently, the economy is at full employment. Suddenly, due to an infectious disease, many factories are closed. Explain how prices and output in this economy would change in the short run and in the long run. Diagram/s are required to aid your explanation. Type words in the response section below. Submit the diagram(s) as Question 4.
Chapter1: Making Economics Decisions
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Transcribed Image Text:Short Essay Scenario 1 (Relates Q3-06)
Assume that the aggregate supply curve is upward sloping as nominal wages are sticky in the short n
But in the long run, wages are flexible to simulate an economy in which the aggregate supply curve is
vertical. Currently, the economy is at full employment.
Suddenly, due to an infectious disease, many factories are closed. Explain how prices and output in this
economy would change in the short run and in the long run. Diagram/s are required to aid your
explanation.
Type words in the response section below. Submit the diagram(s) as Question 4.
Expert Solution
Step 1
Aggregate Supply curve refers to the curve that shows the real output that all firms and producers in an economy produce and sell at the different price levels in the economy. It is the aggregate of all types of supplies in the economy.
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