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Quantity of aggregate output
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?
Maggie's utility function is and her income is $5000. Then her MRS at generic bundle (x1, x2) is 50-0.25x1. Commodity 2 is a composite good, and hence its price is unity.
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Consider economy that is above full-employment equilibrium (natural rate of output) because of an increase in AD. Prices of productive resources have'nt changed. With the help of graph
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Illustrtae what is the required rate of return on each of the two company's equity.
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