Suppose that the economy of Witland in the figure below is at full-employment equilibrium and the present nominal wage rate is $20 per hour. Round your answers to two decimal places.

a. The real wage rate (in base year prices) is $______________ .

b) Suppose that aggregate demand increases by $400. Draw the new AD curve in the graph above. Plot only the endpoints of the curve.

c) At the new equilibrium real GDP level, the value of the real wage rate will be $__________ . d) As a result of the change in prices in b), suppose that nominal wage increases, causing aggregate supply to change by $400. Draw the new AS curve in the graph above. Plot only the endpoints of the curve.

Transcribed Image Text:

Price Level 130 120 110- 100 90 200 400 The economy of Witland 600 800 1000 1200 Real GDP 1400 1600 1800 2000 AS AD LAS AD2 AS2 Price Level 130 120 110- 100 90 200 400 The economy of Witland 600 800 1000 1200 Real GDP 1400 1600 1800 2000 AS AD LAS AD2 AS2

Answer rating: 100% (QA)

a Nominal wage rate 20 per hour Price level in current year 110 Price level in base ye... View the full answer