Suppose workers and firms suddenly believe that inflation will be quite high over the coming year. Suppose

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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 AD curve does not shift.

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

b. Using an AD/AS 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.

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Economics

ISBN: 9781473768543

5th Edition

Authors: Gregory Mankiw, Mark P. Taylor

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Question Posted: Apr 26, 2024 02:01 AM

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Suppose workers and firms suddenly believe that inflation will be quite high over the coming year. Suppose

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a When workers and firms suddenly believe that inflation will be quite high over the coming year it can have the following effects 1 Nominal Wages Workers may anticipate higher inflation and adjust th...View the full answer

Economics

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