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 ?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 61P: Table 24.4 describes Santhers economy. Plot the AD/AS curves and identify the equilibrium. Would you...

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Question

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
0
1
3
Potential Output
SRAS
6
12
9
REAL GDP (Trillions of dollars)
15
18
Potential Output
SRAS
?

PRICE LEVEL
240
200
160
120
80
40
0
0 3
SRAS[120]
12
6
9
REAL GDP (Trillions of dollars)
15
18
SRAS[120]
O
Interpret 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 earn
they
their production level. At the same time, the real value of wages and other resource prices is
expected when they signed long-term contracts. As a result, the economy as a whole produces at a level
unemployment rate is
than its natural rate.
profit than they expected on each unit of output they produce, and, therefore,
than workers and firms
its potential output, and the
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.

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