Price Level changes faster or more than nominal wages and resource costs
Price Level changes by the same amount of nominal wages and resource costs
Question 2
2.
At long-run equilibrium, the natural rate of unemployment is equal to the current rate of unemployment.
Question 3
3.
The long-run adjustment solution to a recessionary gap is for _________ to shift to the ______________________ . The long-run adjustment solution to a recessionary gap is for _________to shift to the _________ .
Other Answer Choices:
SRAS
Left
AD
LRAS
Right
Question 4
4.
Sequence the LR-Adjustment from LR to SR back to LR.
AD shifts right
In the SR, nominal wages are sticky, but firms will agree to higher nominal wages in the LR.
We have demand pull inflation and a positive output gap.
The economy starts in LR-Equilibrium.
SRAS shifts left.
Question 5
5.
Sequence the LR-Adjustment from LR to SR back to LR.
The economy starts in LR-Equilibrium.
The economy will be back at long-run position with no change in PL or RGDP.
Due to lower RGDP, unemployment fears grow and workers are willing to accept lower nominal wages.
SRAS will now shift right.
Nominal wages are sticky in the SR, but flexible in the LR. As such, firms will pay lower nominal wages in the LR.
Flexible Resource Prices
Short Run
Long Run
Due to higher prices, workers demand higher nominal wages.
The economy is back to full employment with a higher PL and RGDP that is stabilized back at its full employment position.
Consumer confidence increases.
We now have cost-push inflation, or a stagflation.