CHAPTER 14 HOMEWORK ANSWERS
Suggested problems: 2,3,5,7,8,9,12
Y Y* Y
1 Output falls, price falls, unemployment rises.
The higher unemployment rate means that workers will gradually accept lower
nominal wages. People expect prices to fall in the future and therefore the SRAS
curve shifts out to the right. Long run equilibrium has a lower price level, a return
to the natural level of output and a return to the natural rate of unemployment.
b. shift in (higher minimum wage means L falls)
5. a. The AD curve slopes downward because of (i) the wealth effect,