4 Price-Misperceptions Model [10 Points] Consider the standard pricemisperceptions model. Suppose the economy is in the long run equilibrium, where P8 = P = P*. P is the actual price level, and P6 is household's perceived price level. Moreover, given the price level P, the equilibrium nominal wage rate is U), which clears the labor market. Suppose the money supply increases by 10% in this economy and it is totally unperceived by households. Therefore, we suppose that in the short run, P8 = P* and P = 110% - P*. 1. What happens to the nominal wage rate, w, in the long run? Choose correct statement(s) from below and justify carefully your choice. A. The nominal wage rate w, increases by exactly 10%; . The nominal wage rate w, increases by less than 10%; The nominal wage rate w, increases by more than 10%; The nominal wage rate w, decreases by exactly 10%; The nominal wage rate 11), decreases by less than 10%; mwpow The nominal wage rate w, decreases by more than 10%; 2. What happens to the nominal wage rate, w, in the short run? Choose correct statement(s) from below and justify carefully your choice. A. The nominal wage rate w, increases by exactly 10%; . The nominal wage rate 11), increases by less than 10%; The nominal wage rate 11), increases by more than 10%; The nominal wage rate w, decreases by exactly 10%; The nominal wage rate w, decreases by less than 10%; mecca! The nominal wage rate w, decreases by more than 10%