Question four: Nominal Rigidity a. Consider a model of nominal rigidity that assumes that wages are fully flexible and the labour market is competitive. Nominal rigidity is introduced from the goods market, implying price rigidity and goods market imperfection. 1 . How would an increase in demand affect employment? You may use graphs to illustrate your answer. ii. Is the real wage procyclical or countercyclical in this model? Explain. b. Explain how prices are determined in the Fischer Model of staggered price adjustment, i.e. what are the underlying assumptions for the behaviour of firms. c. Do unanticipated changes in aggregate demand have real effect in the Fischer model? Why or why not? d. Explain the main difference between time dependant price adjustment and state dependant price adjustment. Which of these two mechanisms leads to more rapid price adjustment and why