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d. According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C? e. According to sticky-wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages at point A compare to real wages at point C? f. Judging by the impact of the money supply on nominal and real wages, is this analysis consistent with the proposition that money has real effects in the short run but is neutral in the long run? Explain.

d. According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C? e. According to sticky-wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages at point A compare to real wages at point C? f. Judging by the impact of the money supply on nominal and real wages, is this analysis consistent with the proposition that money has real effects in the short run but is neutral in the long run? Explain.

Brief Principles of Macroeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter15: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
Problem 2PA
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parts d to f

Suppose the economy is in long-run equilibrium. (Note: This is from Chapter 20, which we will cover on April 26) a. Use the model of aggregate demand and aggregate supply to illustrate the initial long-run equilibrium (label that point A). Be sure to include both short- run and long-run aggregate supply. b. Suppose the central bank raises the money supply by 5%. Illustrate in your graph what happens to output and the price level as the economy moves from the initial equilibrium to the new short-run equilibrium (label that point B). c. Now show the new long-run equilibrium (label that point C). What causes the economy to move from point B to point C? d. According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C? e. According to sticky-wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages at point A compare to real wages at point C? f. Judging by the impact of the money supply on nominal and real wages, is this analysis consistent with the proposition that money has real effects in the short run but is neutral in the long run? Explain.
Transcribed Image Text:Suppose the economy is in long-run equilibrium. (Note: This is from Chapter 20, which we will cover on April 26) a. Use the model of aggregate demand and aggregate supply to illustrate the initial long-run equilibrium (label that point A). Be sure to include both short- run and long-run aggregate supply. b. Suppose the central bank raises the money supply by 5%. Illustrate in your graph what happens to output and the price level as the economy moves from the initial equilibrium to the new short-run equilibrium (label that point B). c. Now show the new long-run equilibrium (label that point C). What causes the economy to move from point B to point C? d. According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C? e. According to sticky-wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages at point A compare to real wages at point C? f. Judging by the impact of the money supply on nominal and real wages, is this analysis consistent with the proposition that money has real effects in the short run but is neutral in the long run? Explain.
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