Compare two economies. In economy A, firms change their prices often throughout the year. In economy...

 

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Compare two economies. In economy A, firms change their prices often throughout the year. In economy B, firms change their prices only once a year. Economy A has a high minimum wage and very generous unemployment insurance. Economy B has neither of those things. Otherwise the two economies are identical. a. Which of the two economies has a higher long-run level of output? Explain. b. Which of the two economies has the steeper short-run aggregate-supply curve? Explain. c. Suppose there is an increase in aggregate demand. Which of the two economies experiences a greater expansion on output? which experiences a higher inflation? Illustrate your answer with a graph. Compare two economies. In economy A, firms change their prices often throughout the year. In economy B, firms change their prices only once a year. Economy A has a high minimum wage and very generous unemployment insurance. Economy B has neither of those things. Otherwise the two economies are identical. a. Which of the two economies has a higher long-run level of output? Explain. b. Which of the two economies has the steeper short-run aggregate-supply curve? Explain. c. Suppose there is an increase in aggregate demand. Which of the two economies experiences a greater expansion on output? which experiences a higher inflation? Illustrate your answer with a graph.

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Economy B has a higher long run level of output because in economy A the minimum wage is very high and if the firm expand their production they should ... View the full answer