Read this article from the Conversation: Government to legislate for multi-employer bargaining, strengthening push for wage increases Assume the following scenario: (i) The Reserve Bank of Australia (RBA) uses the interest rate rule to respond to deviations from the targeted inflation (P − P^T). (ii) To simplify the analysis, ignore the increase in cost of living referred to in the article. That is, assume that there has not been an initial shock causing an increase in prices. Use the IS-LM model, the wage-setting and price-setting models, as well as AD-AS models, to explain (both graphically and in words) the effects of this legislation on:

(a) Output level, interest rate, and price, in the short-run.

(b) Output level, interest rate, and price, in the medium-run.

Answer rating: 100% (QA)

a The crice level goes up and output stays unchanged in the 16 Short Run 1 The increase in price red... View the full answer