Use the sticky wage theory of aggregate supply to explain what will happen to output and the price level in the long run. What role does expected price level play in the adjustment?

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Sixta KovacekLv2

8 Jun 2018

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The sticky-price theory implies that

A. the short-run aggregate supply curve is upward-sloping.

B. an unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce.

C. menu costs influence the speed of adjustment of prices.

D. All of the above are correct.

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The Federal Reserve expands the money supply by 5 percent:

a. Use the theory of liquidity preference to illustrate in a graph the impact of this policy on the interest rate.
b. Use the model of aggregate demand and aggregate supply to illustrate the impact of this change
in the interest rate on output and the price level in the short run.
c. When the economy makes the transition from its short-run equilibrium to its new long-run equilibrium, what will happen to the price level?
d. How will this change in the price level affect the demand for money and the equilibrium interest rate?
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What will be the correct answer to the below question :

An increase in the expected price level shifts short-run aggregate supply to the

a. right, and an increase in the actual price level shifts short-run aggregate supply to the right.
b. right, and an increase in the actual price level does not shift short-run aggregate supply.
c. left, and an increase in the actual price level shifts short-run aggregate supply to the left.
d. left, and an increase in the actual price level does not shift short-run aggregate supply.

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