Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? O Nominal wages, prices, and perceptions adjust upward to this new price level. O The government increases spending to increase aggregate demand. O The government increases taxes to curb aggregate demand. O Nominal wages, prices, and perceptions adjust downward to this new price level. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply. Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run equilibrium. n
Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? O Nominal wages, prices, and perceptions adjust upward to this new price level. O The government increases spending to increase aggregate demand. O The government increases taxes to curb aggregate demand. O Nominal wages, prices, and perceptions adjust downward to this new price level. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply. Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run equilibrium. n
Chapter8: Macroeconomic Equilibrium: Aggregate Demand And Supply
Section: Chapter Questions
Problem 14E
Related questions
Question
![Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent.
Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium.
LRAS
Aggregate Supply
Aggregate Demand
Aggregate Supply
Aggregate Demand
Price Level
Quantity of Output](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F353d9390-9d86-4b30-b14b-c5063d2ffce9%2F4678ab9d-f9d7-4e47-8db5-bc077ab4aed3%2Fl8k3ybe_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent.
Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium.
LRAS
Aggregate Supply
Aggregate Demand
Aggregate Supply
Aggregate Demand
Price Level
Quantity of Output
![Now adjust the graph to show the new long-run equilibrium.
What causes the economy to move from its short-run equilibrium to its long-run equilibrium?
O Nominal wages, prices, and perceptions adjust upward to this new price level.
O The government increases spending to increase aggregate demand.
O The government increases taxes to curb aggregate demand.
O Nominal wages, prices, and perceptions adjust downward to this new price level.
Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that
apply.
O Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run equilibrium.
Nominal wages at the initial equilibrium are greater than nominal wages at the new long-run equilibrium.
Real wages at the initial equilibrium are greater than real wages at the new short-run equilibrium.
Real wages at the initial equilibrium are equal to real wages at the new long-run equilibrium.
consistent with the proposition that money has real
Judging by the impact of the money supply on nominal and real wages, this analysis
effects in the short run but is neutral in the long run.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F353d9390-9d86-4b30-b14b-c5063d2ffce9%2F4678ab9d-f9d7-4e47-8db5-bc077ab4aed3%2Feyil1za_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Now adjust the graph to show the new long-run equilibrium.
What causes the economy to move from its short-run equilibrium to its long-run equilibrium?
O Nominal wages, prices, and perceptions adjust upward to this new price level.
O The government increases spending to increase aggregate demand.
O The government increases taxes to curb aggregate demand.
O Nominal wages, prices, and perceptions adjust downward to this new price level.
Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that
apply.
O Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run equilibrium.
Nominal wages at the initial equilibrium are greater than nominal wages at the new long-run equilibrium.
Real wages at the initial equilibrium are greater than real wages at the new short-run equilibrium.
Real wages at the initial equilibrium are equal to real wages at the new long-run equilibrium.
consistent with the proposition that money has real
Judging by the impact of the money supply on nominal and real wages, this analysis
effects in the short run but is neutral in the long run.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Economics:](https://www.bartleby.com/isbn_cover_images/9781285859460/9781285859460_smallCoverImage.gif)
![Macroeconomics](https://www.bartleby.com/isbn_cover_images/9781337617390/9781337617390_smallCoverImage.gif)
![Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781337617383/9781337617383_smallCoverImage.gif)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
![Economics:](https://www.bartleby.com/isbn_cover_images/9781285859460/9781285859460_smallCoverImage.gif)
![Macroeconomics](https://www.bartleby.com/isbn_cover_images/9781337617390/9781337617390_smallCoverImage.gif)
![Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781337617383/9781337617383_smallCoverImage.gif)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
![ECON MACRO](https://www.bartleby.com/isbn_cover_images/9781337000529/9781337000529_smallCoverImage.gif)
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
![Principles of Macroeconomics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781285165912/9781285165912_smallCoverImage.gif)
Principles of Macroeconomics (MindTap Course List)
Economics
ISBN:
9781285165912
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning