Suppose an economy is in loh 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. Price Level LRAS Aggregate Supply Aggre Demand Quantity of Output Aggregate Demand 191 Aggregate Supply 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? Nominal wages, prices, and perceptions adjust upward to this new price level. The government increases taxes to curb aggregate demand. The government increases spending to increase aggregate demand. Nominal wages, prices, and perceptions adjust downward to this new price level. According to the sticky-wage theory of aggregate supply, nominal wages at the initial equilibrium are nominal wages at the short-run equilibrium resulting from the increase in the money supply, and nominal wages at the long-run equilibrium. Real wages at the initial equilibrium are real wages at the short-run equilibrium resulting from the increase in the money supply, and real wages at the long-run equilibrium, Judging consistent by the impact of the money supply on nominal and real wages, this analysis, with the proposition that money has real effects in the short run but is neutral in the long run.
Suppose an economy is in loh 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. Price Level LRAS Aggregate Supply Aggre Demand Quantity of Output Aggregate Demand 191 Aggregate Supply 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? Nominal wages, prices, and perceptions adjust upward to this new price level. The government increases taxes to curb aggregate demand. The government increases spending to increase aggregate demand. Nominal wages, prices, and perceptions adjust downward to this new price level. According to the sticky-wage theory of aggregate supply, nominal wages at the initial equilibrium are nominal wages at the short-run equilibrium resulting from the increase in the money supply, and nominal wages at the long-run equilibrium. Real wages at the initial equilibrium are real wages at the short-run equilibrium resulting from the increase in the money supply, and real wages at the long-run equilibrium, Judging consistent by the impact of the money supply on nominal and real wages, this analysis, with the proposition that money has real effects in the short run but is neutral in the long run.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:9. Problems and Applications Q3
Suppose an economy is in long-run equilibrium. The central bank raises 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.
Price Level
LRAS
Aggregate Supply
Aggregate Demand
Quantity of Output
Aggregate Demand
10
Aggregate Supply
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?
Nominal wages, prices, and perceptions adjust upward to this new price level.
The government increases taxes to curb aggregate demand.
The government increases spending to increase aggregate demand.
Nominal wages, prices, and perceptions adjust downward to this new price level.
According to the sticky-wage theory of aggregate supply, nominal wages at the initial equilibrium
are
nominal wages at the short-run equilibrium resulting from the increase in the
money supply, and
nominal wages at the long-run equilibrium. Real wages at the
initial equilibrium are
real wages at the short-run equilibrium resulting from the
increase in the money supply, and
real wages at the long-run equilibrium, Judging
consistent
by the impact of the money supply on nominal and real wages, this analysis,
with the proposition that money has real effects in the short run but is neutral in the long run.
Check Answer
Save &
continue
Continue without saving
Expert Solution
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!
Step 1: Define AD-AS equilibrium:
VIEWStep 2: Graphical adjustment of the money supply change in the SR:
VIEWStep 3: Graphical adjustment of the money supply change in the LR:
VIEWStep 4: Reason behind SR to LR adjustment
VIEWStep 5: Effect of change in money supply on the nominal wage:
VIEWStep 6: Effect of change in money supply on the real wage:
VIEWStep 7: Effect of change in money supply and neutrality of money:
VIEWSolution
VIEW
Trending now
This is a popular solution!
Step by step
Solved in 8 steps with 3 images
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
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education