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.