Now, suppose prices remain lower than expected. As a result, in the next round of labor negotiations, unions accept lower wages for their members.The following graph shows the potential output for this economy as well as the same initial short-run aggregate supply curve as in the first graph.Shift one or both of these lines to illustrate how the economy adjusts to a new long-run equilibrium.PRICE LEVEL24020016012080400013Potential OutputSRAS6129REAL GDP (Trillions of dollars)1518Potential OutputSRAS? PRICE LEVEL240200160120804000 3SRAS[120]1269REAL GDP (Trillions of dollars)1518SRAS[120]OInterpret the change you drew on the previous graph by filling in the blanks in the following paragraph:The lower-than-expected price level causes firms to earntheytheir production level. At the same time, the real value of wages and other resource prices isexpected when they signed long-term contracts. As a result, the economy as a whole produces at a levelunemployment rate isthan its natural rate.profit than they expected on each unit of output they produce, and, therefore,than workers and firmsits potential output, and theNow, suppose prices remain lower than expected. As a result, in the next round of labor negotiations, unions accept lower wages for their members.The following graph shows the potential output for this economy as well as the same initial short-run aggregate supply curve as in the first graph.Shift one or both of these lines to illustrate how the economy adjusts to a new long-run equilibrium.

The association between the price and the amount of real GDP that companies are ready to supply in…

Now, suppose prices remain lower than expected. As a result, in the next round of labor negotiations, unions accept lower wages for their members. The following graph shows the potential output for this economy as well as the same initial short-run aggregate supply curve as in the first graph. Shift one or both of these lines to illustrate how the economy adjusts to a new long-run equilibrium. PRICE LEVEL 240 200 160 120 80 40 0 3 Potential Output SRAS 6 12 9 REAL GDP (Trillions of dollars) 15 18 Potential Output SRAS ?

Now, suppose prices remain lower than expected. As a result, in the next round of labor negotiations, unions accept lower wages for their members. The following graph shows the potential output for this economy as well as the same initial short-run aggregate supply curve as in the first graph. Shift one or both of these lines to illustrate how the economy adjusts to a new long-run equilibrium. PRICE LEVEL 240 200 160 120 80 40 0 3 Potential Output SRAS 6 12 9 REAL GDP (Trillions of dollars) 15 18 Potential Output SRAS ?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: Measuring The Cost Of Living

Section: Chapter Questions

Problem 3PA

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