QUESTION 4 According to the BLS Wages and salaries without adjusting for inflation increased 5.0 percent for the 12-month period ending in December 2021. While Inflation-adjusted (constant dollar), private wages and salaries declined 1.9 percent for the 12 months ending December 2021. How has this likely affected output produced by firms in the short-run? If inflation adjusted wages have gone down, production should go down as there is a lower incentive to produce more output. Real wages have gone up so there is a higher cost for firms to produce at any given price reducing therefore aggregate output supplied. In the short-run, while nominal wages do not fully adjust for inflation making real wages lower, there is an incentive for firms to produce more than once wages are fully flexible . O All of the above QUESTION 5 The following graphs shows the evolution of the interest rate of the Russian government 10 year bond in the past six months. As of March 14, 2022, lenders were promised an annual interest rate of 19.89% for the Russian bond, while what are regarded as safe assets such as the 10 year US note bond were traded at an annual interest rate of 2.21% Russia 10Y 1D Russia 10Y Bond Yield (percent) 19.8900 +5.96 (+42.79%) 19.890 18 16 14 12 10 Nov Dec 2022 Feb Mar 1D 1W 1M 6M 1Y 5Y 10Y All This difference in interest rates is a market failure of financial markets. In a global loanable funds market, the interest rate should converge across countries under any circumstance. In March, at a given interest rate, supply of loanable funds has probably increased significantly compared to any shift in the demand of loanable funds in Russia leading to this significant spike in the interest rate. There will be a massive inflow of capital to Russia to fund its government bonds given the difference between the US and Russian 10-year bond interest rate. This shows the increased risk perceived by savers associated with lending to the Russian government that is captured by the difference in interest rates between both bonds known as risk premium