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Divergence of Short-Run and Long-Run Policy Effects
In economic analysis, it is crucial to distinguish between the immediate (short-run) and eventual (long-run) consequences of a policy. An initial impact, such as a policy-induced wage increase, is often not the final outcome, as it can trigger further adjustments that lead the economy toward a new long-term equilibrium.
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Introduction to Macroeconomics Course
Ch.2 Unemployment, wages, and inequality: Supply-side policies and institutions - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Intra-firm Coordination vs. Economy-Wide Inconsistency in the WS-PS Model
Adjustment Mechanism from Low Employment Disequilibrium in the WS-PS Model
Policy-Induced Shift Away from Nash Equilibrium
Divergence of Short-Run and Long-Run Policy Effects
Activity: Tracing Actor Responses to a Policy Shock in the WS-PS Model
The WS-PS Equilibrium as a Weak and Slow-Acting Magnet
Sequential Wage and Price Setting by Firms
Definition of the Bargaining Gap
Consider an economy described by the wage-setting (WS) and price-setting (PS) model. If the current level of employment is significantly above the equilibrium level, which of the following statements accurately analyzes the state of the economy at this point?
Analyzing an Economy with High Unemployment
In the WS-PS model, a disequilibrium where the wage demanded by workers exceeds the wage offered by firms is primarily caused by a failure of coordination within individual firms, such as the HR department setting wages that the marketing department cannot support with its pricing strategy.
Explaining Disequilibrium in the Labor Market
In a model where one curve represents the real wage required to motivate workers at different levels of employment (the wage-setting curve) and another curve represents the real wage that results from firms' profit-maximizing pricing decisions (the price-setting curve), match each employment scenario to its corresponding outcome.
Analyzing the Source of Economic Inconsistency
In a labor market model, when the real wage required to secure adequate worker effort is inconsistent with the real wage that results from firms' profit-maximizing price levels, the economy is in a state of ____.
An economy is currently operating at a level of employment higher than its stable equilibrium point. Arrange the following statements to describe the logical sequence of conditions that characterize this state of disequilibrium.
Analyzing a Policy Shock in the Labor Market
Analyzing Labor Market Disequilibrium
Adjustment Mechanism from High Employment Disequilibrium in the WS-PS Model
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Analyzing a Policy Shock
A government enacts a policy that permanently increases the level of unemployment benefits. Arrange the following events to show the sequence of adjustments from the initial short-run impact to the new long-run equilibrium.
Long-Run Effects of Competition Policy
Suppose a government enacts a policy that permanently increases the bargaining power of labor unions, causing an immediate increase in the nominal wage demanded by workers. Which statement accurately contrasts the short-run effect with the final long-run equilibrium outcome of this policy?
Explaining the Adjustment Path
Consider a government policy that permanently increases the level of competition among firms in an economy. True or False: In the short run, this policy creates a situation where the real wage resulting from firms' pricing decisions is higher than the real wage required by workers. This imbalance is then corrected as firms reduce their nominal wages, ultimately leading the economy to a new long-run equilibrium with a lower rate of unemployment.
An economy is initially in its long-run equilibrium. Match each of the following permanent policy changes to its resulting short-run disequilibrium and new long-run equilibrium.
An economy is in its long-run equilibrium when the government enacts a permanent policy that increases competition among firms, forcing them to reduce their price markup over costs. Which statement best analyzes the adjustment process to the new long-run equilibrium?
An economy is in its long-run equilibrium. A new government policy permanently reduces the price markup that firms can charge over their costs. An analyst claims: 'This policy won't change the long-run unemployment rate. In the short run, firms will offer a higher real wage, but this will be temporary. The economy will simply return to the original unemployment rate with a higher real wage.' Which of the following statements provides the most accurate evaluation of the analyst's claim?
An economy, initially in a long-run stable state, experiences a permanent policy change. In the immediate aftermath, it is observed that at the original level of employment, the real wage required by workers now exceeds the real wage implied by firms' pricing decisions. Based on this observation, which of the following statements provides the most accurate analysis of the situation?