nterpret the change you drew on the previous graph by filling in the blanks in the following paragraph: The higher-than-expected price level causes firms to earn_____profit than they expected on each unit of output they produce, and, therefore, they_____their production level. At the same time, the real value of wages and other resource prices is_____than workers and firms expected when they signed long-term contracts. As a result, the economy as a whole produces at a level______its full-employment output, and the unemployment rate is_____than its natural rate. Now, suppose prices remain higher than expected. As a result, in the next round of labor negotiations, unions demand and obtain higher wages for their members. The following graph shows the long-run aggregate supply curve (LRASLRAS) at full-employment 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.
nterpret the change you drew on the previous graph by filling in the blanks in the following paragraph: The higher-than-expected price level causes firms to earn_____profit than they expected on each unit of output they produce, and, therefore, they_____their production level. At the same time, the real value of wages and other resource prices is_____than workers and firms expected when they signed long-term contracts. As a result, the economy as a whole produces at a level______its full-employment output, and the unemployment rate is_____than its natural rate. Now, suppose prices remain higher than expected. As a result, in the next round of labor negotiations, unions demand and obtain higher wages for their members. The following graph shows the long-run aggregate supply curve (LRASLRAS) at full-employment 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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Interpret the change you drew on the previous graph by filling in the blanks in the following paragraph:
The higher-than-expected price level causes firms to earn_____profit than they expected on each unit of output they produce, and, therefore, they_____their production level. At the same time, the real value of wages and other resource prices is_____than workers and firms expected when they signed long-term contracts. As a result, the economy as a whole produces at a level______its full-employment output, and the unemployment rate is_____than its natural rate.
Now, suppose prices remain higher than expected. As a result, in the next round of labor negotiations, unions demand and obtain higher wages for their members. The following graph shows the long-run aggregate supply curve (LRASLRAS) at full-employment 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.
Transcribed Image Text:PRICE LEVEL (CPI)
360
300
240
180
120
60
0
0
3
LRAS
SRAS
6
9
12
REAL GDP (Trillions of dollars)
15
18
LRAS
SRAS
?
![5. The short-run and long-run aggregate supply curves
The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 180. The economy's full-
employment output level is $9 trillion.
Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected
price level of 180, but the actual price level turns out to be 240. Show the short-run effect of the unexpectedly high price level by dragging the curve
or moving the point to the appropriate position.
PRICE LEVEL (CPI)
360
300
240
180
120
60
0
0
3
SRAS[180]
6
9
12
REAL GDP (Trillions of dollars)
15
18
SRAS[180]
☐
?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fff80f0a4-d452-450d-98de-d6817c227552%2F5fb93111-ca54-48a4-a6f3-00621364f5ba%2Fyow774i_processed.png&w=3840&q=75)
Transcribed Image Text:5. The short-run and long-run aggregate supply curves
The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 180. The economy's full-
employment output level is $9 trillion.
Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected
price level of 180, but the actual price level turns out to be 240. Show the short-run effect of the unexpectedly high price level by dragging the curve
or moving the point to the appropriate position.
PRICE LEVEL (CPI)
360
300
240
180
120
60
0
0
3
SRAS[180]
6
9
12
REAL GDP (Trillions of dollars)
15
18
SRAS[180]
☐
?
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