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Suppose the economy is in a long-run equilibrium, as shown in the following graph. Now suppose that a stock market boom causes aggregate demand to rise. Use your diagram to show what happens to output and the price level in the short run. LRAS O Aggregate Supply Aggregate Demand O Price Level Aggregate Supply A LRAS Aggregate Demand Quantity of Output As a result of this change, the unemployment rate Use the sticky-wage theory of aggregate supply to think about what will happen to output and the price level in the long run (assuming there is no change in policy). On the graph, illustrate the change that will occur in the long run.Suppose an economy is in long run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium, LRAS Aggregate Supply Aggregate Demand Price Level Aggregale Supply Aggregate Demand Quantity of Output Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? Nominal wages, prices, and perceptions adjust upward to this new price level. The government increases taxes to curb aggregate demand. The government increases spending to increase aggregate demand. Nominal wages, prices, and perceptions adjust downward to this new price level. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply. Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run equilibrium. Nominal wages at the initial equilibrium are less than nominal wages at the new long-run equilibrium. Real wages at the initial equilibrium are equal to real wages at the new short-run equilibrium. Real wages at the initial equilibrium are equal to real wages at the new long-run equilibrium. O Real wages at the initial equilibrium are equal to real wages a is not New long-run equilibrium. is Judging by the impact of the money supply on nominal and real wages, this analysis consistent with the proposition that money has real effects in the short run but is neutral in the long run.For each of the followan ustrace the short-nin effect on augrebate supply and aponegate demand Firms nvest more. LACKS aggregate Demand Price Level Aggregate Supply LEAS Aggregate Demand Quantity of Outpus Florida orange groves suffer a prolonged period of below-freezing temperatures. LRAS Aggregate Supply Aggregate Demand O Price Level Aggregate Supply LRAS Aggregate Demand Quantity of Output A wave of immigration significantly increases the population. LRAS Apgregate Supply Aggregate Demand -O Price Level Aggregate Supply LRAS Aggregate Demand Quantity of Output
