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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.

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

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.

SRAS shifts left.
The economy is back to full employment with a higher PL and RGDP that is stabilized back at its full employment position.
Due to higher prices, workers demand higher nominal wages.
AD shifts right
Consumer confidence increases.
The economy starts in LR-Equilibrium.
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.

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5.

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

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