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?