Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 33 - Part XII - Aggregate Demand and Aggregate Supply - Problems and Applications - Page 743: 7

Answer

a) The price level would be expected to increase. If inflation is not an issue, then the price level would increase more than if inflation is an issue. b) This would then increase the nominal wage that workers agree to in new labor contracts. (The real wage would likely be the same.) c) This would decrease the profitability of producing goods and services at any price level (since higher wages would be paid).

Work Step by Step

d) This decrease in profitability would shift the short run aggregate supply curve to the left. e) Holding aggregate demand constant would increase the price level of the goods produced, and there would be fewer goods produced. f) This Fed chairman was not a good appointment since the overall level of output decreased.
Update this answer!

You can help us out by revising, improving and updating this answer.

Update this answer

After you claim an answer you’ll have 24 hours to send in a draft. An editor will review the submission and either publish your submission or provide feedback.