How the shocks would affect the real wage rate

Reference no: EM13212628

Use the classical model and the quantity theory of money to predict how each of the following shocks would affect the real wage rate (W/P), the real interest rate (r), real aggregate income (Y), and the price of goods and services (P) in a closed economy in the long run, all else equal. For each shock, be sure to clearly state a prediction for all four variables, illustrate your predictions with the relevant diagrams, and explain your predictions intuitively in words. a. A increase in the size of the domestic capital supply b. An increase in the income velocity of money.

Reference no: EM13212628

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