The economy begins in long-run equilibrium.Then one day, the president appoints a
Chapter 20, Problem 8(choose chapter or problem)
The economy begins in long-run equilibrium.Then one day, the president appoints a newchairman of the Federal Reserve. This newchairman is well-known for his view that inflationis not a major problem for an economy.a. How would this news affect the price levelthat people would expect to prevail?b. How would this change in the expected pricelevel affect the nominal wage that workers andfirms agree to in their new labor contracts?c. How would this change in the nominal wageaffect the profitability of producing goodsand services at any given price level?d. How does this change in profitability affectthe short-run aggregate-supply curve?e. If aggregate demand is held constant, howdoes this shift in the aggregate-supply curveaffect the price level and the quantity of outputproduced?f. Do you think this Fed chairman was a goodappointment?
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