Log inSign up for FREE
Library

Video Follow-up: Macro 3.7-LR Adjustments

Last updated 10 months ago
5 questions
Pick 1, Answer the 5 questions!
1

Sort the following based on time frame.

  • Price Level changes by the same amount of nominal wages and resource costs
  • Flexible Resource Prices
  • Price Level changes faster or more than nominal wages and resource costs
  • Flexible (Nominal) Wages
  • Sticky (Nominal) Wages
  • Sticky Resource Prices
  • Short Run
  • Long Run
1

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

1
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
1

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

  1. The economy starts in LR-Equilibrium.
  2. In the SR, nominal wages are sticky, but firms will agree to higher nominal wages in the LR.
  3. Consumer confidence increases.
  4. AD shifts right
  5. We have demand pull inflation and a positive output gap.
  6. SRAS shifts left.
  7. The economy is back to full employment with a higher PL and RGDP that is stabilized back at its full employment position.
  8. Due to higher prices, workers demand higher nominal wages.
1

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

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