Video Follow-up: Macro 3.7-LR Adjustments
Pick 1, Answer the 5 questions!
Pick 1, Answer the 5 questions!
Sort the following based on time frame.
Sticky (Nominal) Wages
Price Level changes by the same amount of nominal wages and resource costs
Price Level changes faster or more than nominal wages and resource costs
Sticky Resource Prices
Flexible Resource Prices
Flexible (Nominal) Wages
Short Run
Long Run
At long-run equilibrium, the natural rate of unemployment is equal to the current rate of unemployment.
Sequence the LR-Adjustment from LR to SR back to LR.
We have demand pull inflation and a positive output gap.
In the SR, nominal wages are sticky, but firms will agree to higher nominal wages in the LR.
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.
The economy starts in LR-Equilibrium.
SRAS shifts left.
AD shifts right
Due to higher prices, workers demand higher nominal wages.
Sequence the LR-Adjustment from LR to SR back to LR.
Nominal wages are sticky in the SR, but flexible in the LR. As such, firms will pay lower nominal wages in the LR.
Due to lower RGDP, unemployment fears grow and workers are willing to accept lower nominal wages.
SRAS will now shift right.
The economy will be back at long-run position with no change in PL or RGDP.
Oil prices rise.
We now have cost-push inflation, or a stagflation.
The economy starts in LR-Equilibrium.
SRAS shifts left.