Use the table below to answer the following questions. The table shows short-run aggregate supply schedule (AS) for various nominal wages. Each entry shows the real level of output (Q) firms will produce. Note how higher wages reduce AS at each price level. The last column shows aggregate demand (AD) at each price level.

a. What is the short-run equilibrium price level, output, and wage when the nominal wage (W) is $10? $14? $18?

b. Suppose full employment occurs at the real output level of 2,000.
What happens when initially W = $10? W = $18?

Transcribed Image Text:

Price Level (P) 80 100 120 140 160 AS if W = $10 1,800 2,200 2,400 2,500 2,500 AS if W = $14 1,200 1,700 2,000 2,300 2,500 AS if W = $18 700 1,100 1,500 1,800 2,100 AD 2,400 2,220 2,000 1,800 1,600