Answer Blanks: 1. Lower, higher 2. 640, 480, 400, 560 3. will, will not 4. will,
ID: 1213343 • Letter: A
Question
Answer Blanks:
1. Lower, higher
2. 640, 480, 400, 560
3. will, will not
4. will, will not
Short Run
Change in Unemployment Rate:
Anticipated Expansionary Policy- increase, decrease, no change
Unanticipated Expansionary Policy- increase, decrease, no change
Long Run
Change in Price Level:
Anticipated Expansionary Policy- Higher than initial expectations, Lower than the initial expectations, Same as initial expectations
Unanticipated Expansionary Policy- Higher than initial expectations, Lower than the initial expectations, Same as initial expectations
Change in Unemployment Rate:
Anticipated Expansionary Policy-increase, decrease, no change
Unanticipated Expansionary Policy- increase, decrease, no change
Consider the following hypothetical situation: The U.S. economy is in equilibrium at potential output, so unemployment is at its natural rate. Firms and workers negotiate annual wage agreements at the beginning of each year. At the beginning of this year, the Federal Reserve (the "Fed") announces that it will pursue monetary policy aimed simply at sustaining potential output and the current price level throughout the year. The following graph shows the aggregate demand curve (AD), the long-run aggregate supply curve (LRAS), and the short-run aggregate supply curve at an expected price level of 240 (SRAS240) for this economy if firms and workers negotiate wages based on the belief that the Fed is committed to price stability PRICE LEVEL LRAS 400 SRAS240 320 160 AD 80 3 6 9 5 18 REAL GDP (Trillions of dollars]Explanation / Answer
1) Higher wage
2) 560
3) will not
4) will
Short run:
Anticipated: decrease
Unanticipated: increase
Long run:
Price level: anticipated: Same as the initial expectations
Unanticipated: Same as the initial
Unemployment: No change in both the cases