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Suppose there is an increase in the real price of energy. In addition, despite the increase in the real price of energy, suppose that the
Suppose there is an increase in the real price of energy. In addition, despite the increase in the real price of energy, suppose that the expected price level (i.e. Pe) does not change. After the short-run effect of the increase in the real price of energy, will there be any further adjustment of the economy over the medium run? In order for the expected price level not to change, what monetary action must wage setters be expecting after an increase in the real price of energy?
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