ECN 301 Chapter Notes - Chapter 12: Real Wages, Aggregate Supply, Aggregate Demand

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Instead, employers unilaterally decide how many hours will be worked and whether workers will be laid off. Fall 2017: assume that firms and employees form an expectation that the price level. Similarly, based on their expectation that the price level will have the value. Suppose that during the term of the contract the price level turns out to be. Firms now find workers to be more expensive than expected and so will desire to reduce the size of their workforce. In figure 12. 1, point g on the labour demand curve nd identifies the profit-maximizing level of employment for the firm: employment therefore falls to n2, below the full-employment level. In the monetary misperception model proposed by classical economists, actual output differs from full employment output for only so long as misperceptions about relative price levels persist. In figure 12. 2 we use the same information used to describe figure.

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