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The economy is at point A in the accompanying diagram. Suppose that the aggregate price level rises from P1 to P2. How will aggregate supply adjust in the short run, as the aggregate price level rises from P1 to P2? Aggregate LRAS price level SRAS1 A Real GDP O Nominal wages will increase with inflation. So profit per unit will rise, leading to an increase in production. O Nominal wages will stay constant. So profit per unit will rise, leading to an increase in production. O Nominal wages will stay constant. So profit per unit will stay constant. leading to production to stay constant. O Nominal wages will decline. So profit per unit will decline, leading to higher production.The economy is at point A in the accompanying diagram. Suppose that the aggregate price level rises from P, to P2. How will aggregate supply adjust in the long run, as the aggregate price level rises from P, to P2? Aggregate LRAS price level SRAS1 . . . . Y1 Real GDP O Nominal wages will be renegotiated upward in reaction to inflation, so profits will decline and production will decline. O Nominal wages will be renegotiated upward in reaction to inflation, so profits will increase but production will increase. O Nominal wages will be renegotiated upward in reaction to inflation, so profits will stay constant and so is production. O Nominal wages, production and profits will stay constant.Suppose that all households hold all their wealth in assets that automatically rise in value when the aggregate price level rises (an example of this is what is called an "inflation-indexed bond"-a bond whose interest rate, among other things, changes one-for-one with the inflation rate). What happens to the wealth effect of a change in the aggregate price level as a result of these assets, that automatically rise in value once prices rise? O The rise in bond value when the aggregate price level rises will eliminate the wealth effect of a change in the aggregate price level. The purchasing power of consumers' wealth will not vary with a change in the aggregate price level and consumption will stay constant. O The rise in bond value when the aggregate price level rises will eliminate the interest rate effect of a change in the aggregate price level. The purchasing power of consumers' wealth will not vary with a change in the aggregate price level and consumption will stay constant. The rise in bond value when the aggregate price level rises will not eliminate the wealth effect of a change in the aggregate price level. The purchasing power of consumers' wealth will increase with a change in the aggregate price level and consumption will shift to the right. O The rise in bond value when the aggregate price level rises will not eliminate the wealth effect of a change in the aggregate price level. The purchasing power of consumers' wealth will decline with a change in the aggregate price level and consumption will shift to the left