9. Suppose workers and firms suddenly believe that inflation will be quite high over the coming year. Suppose also that the economy begins in long-run equilibrium, and the aggregate demand curve does not shift.

a. What happens to nominal wages? What happens to real wages?

b. Using an aggregate demand/aggregate supply diagram, show the effect of the change in expectations on both the short-run and long-run levels of prices and output.

c. Were the expectations of high inflation accurate?

Explain.