Purchase Solution

Quantity of Aggregate Output and Wages

Not what you're looking for?

Ask Custom Question

Suppose that in Wageland all workers sign annual wage contracts each year on January 1. No matter what happens to prices of final goods and services during the year, all workers earn the wage specified in their annual contract. This year, prices of final goods and services fall unexpectedly after the contracts are signed. Answer the following questions using a diagram and assume that the economy starts at potential output.

a. In the short run, how will the quantity of aggregate output supplied respond to the fall in prices?

b. What will happen when firms and workers renegotiate their wages?

Purchase this Solution
Solution Summary

This posting analyzed quantity of aggregate output.

Solution provided by:
Umut Oltulu, MBA
Education
  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
Recent Feedback
  • "Thanks"
  • "Thanks"
  • "This is a great help...Thank you"
  • "Thanks for the advice!"
  • "Oh my gosh u are awesome... A++"
Purchase this Solution
Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

View More Free Quizzes
Related BrainMass Solutions

  • Fiscal policy effects

    The aggregate demand curve shifts to the right as the economy expands. When the aggregate demand curve shifts right, the quantity of output demanded for a given price level rises.

  • Short-run aggregate supply (SRAS)

    Short-run aggregate supply (SRAS) shows the direct (positive) relationship between the price level and the quantity of aggregate output supplied in the short run, other things being constant.

  • Long and Short Run Aggregate Supply Curves

    Flexible prices mean that full employment is achieved and maintained, regardless of the price level. As a result, the long-run aggregate supply curve is vertical at the quantity of real production generated at full employment.

  • Demand for money

    The demand curve for money slope has a negative slope when there is an inverse relationship between the price level and the quantity of aggregate demand. As the price level increases, the quantity of aggregate demand decreases.

  • Multiple Choice

    Equilibrium of aggregate supply and aggregate demand is best described as a situation in which the slope of aggregate demand equals the slope of aggregate supply quantity demanded exceeds quantity supplied quantity demanded equals quantity supplied

  • Effects of Changes in Nominal Money Supply and Price Levels

    If the price level P is P1 and the initial LM curve is LM1, the initial aggregate quantity of output demanded is Y1.

  • Autonomous net taxes and savings

    If the Fed increases the money supply, then a. the interest rate declines and the quantity of money demanded increases b. the interest rate declines and the quantity of money demanded declines c. the interest rate increases and the quantity of money

  • Aggregate Supply and Demand, and Unemployment

    What is the impact of shifts of the aggregate demand curve on potential output? See the attached file.

  • Graphing the AD and AS Curves

    448746 What is the new equilibrium price level and level of real output?

View More Related Solutions