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Video Follow-up: Macro 3.7-LR Adjustments

Last updated over 1 year ago

5 Nsɛmmisa

Akwankyerɛ

Pick 1, Answer the 5 questions!

Question 1

01:19

1

Question 2

03:14

1

Question 3

04:56

1

Question 4

06:03

1

Question 5

06:35

1

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1.

Sort the following based on time frame.

Sticky Resource Prices
Flexible Resource Prices
Price Level changes by the same amount of nominal wages and resource costs
Flexible (Nominal) Wages
Sticky (Nominal) Wages
Price Level changes faster or more than nominal wages and resource costs

Short Run
Long Run

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2.

At long-run equilibrium, the natural rate of unemployment is equal to the current rate of unemployment.

Nokorɛ

Ɛnyɛ ampa

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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 .

Mmuae Afoforo a Wobɛpaw:

SRAS

Left

AD

LRAS

Right

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4.

Sequence the LR-Adjustment from LR to SR back to LR.

We have demand pull inflation and a positive output gap.
The economy starts in LR-Equilibrium.
In the SR, nominal wages are sticky, but firms will agree to higher nominal wages in the LR.
Due to higher prices, workers demand higher nominal wages.
AD shifts right
Consumer confidence increases.
The economy is back to full employment with a higher PL and RGDP that is stabilized back at its full employment position.
SRAS shifts left.

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5.

Sequence the LR-Adjustment from LR to SR back to LR.

We now have cost-push inflation, or a stagflation.
SRAS shifts left.
SRAS will now shift right.
Due to lower RGDP, unemployment fears grow and workers are willing to accept lower nominal wages.
Oil prices rise.
The economy will be back at long-run position with no change in PL or RGDP.
The economy starts in LR-Equilibrium.
Nominal wages are sticky in the SR, but flexible in the LR. As such, firms will pay lower nominal wages in the LR.