Suppose an economy begins at AD and AS in long-run equilibrium with real GDP equal to Y*; the price level is stable at Po. a. Suppose the central bank announces that it will implement an expansionary monetary policy that will shift the AD curve up by 5 percent. Does the shift of the AS curve following this announcement depends on whether workers and firms believe the central bank's announcement? Explain. OA. Yes. Workers' and firms' expectations of inflation put pressure on nominal wages, which is what causes the AS curve to shift. Workers' and firms' expectations of inflation will not change if they do not believe the announcement. OB. No. The bank's announcement will affect the shift of the AS curve, regardless of whether workers and firms believe it. Yes Workers' and firms' expectations of real interest rates put pressure

Suppose an economy begins at AD and AS in long-run equilibrium with real GDP equal to Y*; the price level is stable at Po. a. Suppose the central bank announces that it will implement an expansionary monetary policy that will shift the AD curve up by 5 percent. Does the shift of the AS curve following this announcement depends on whether workers and firms believe the central bank's announcement? Explain. OA. Yes. Workers' and firms' expectations of inflation put pressure on nominal wages, which is what causes the AS curve to shift. Workers' and firms' expectations of inflation will not change if they do not believe the announcement. OB. No. The bank's announcement will affect the shift of the AS curve, regardless of whether workers and firms believe it. Yes Workers' and firms' expectations of real interest rates put pressure

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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