Question 1 1.5 pts Consider the medium run. You should assume there is no liquid

Question

Question 1 1.5 pts Consider the medium run. You should assume there is no liquidity trap. Start from a medium run equilibrium. Assume that the central bank will pursue policies to keep the economy at full employment (at the natural unemployment rate). What would be the short-run and medium-run impact of an increase in unemployment benefits (increase in z) on the nominal wage and the real wage? O The nominal wage would increase in both the short run and the medium run; the real wage would be unchanged in both the short run and the medium run. O The nominal wage would increase in both the short run and the medium run; the real wage would increase in both the short run and the medium run. O The nominal wage would increase in the short run, but would return to the initial level in the medium run; the real wage would increase in the short run, but would return to the initial level in the medium run. O The nominal wage would increase in the short run, but would return to the initial level in the medium run; the real wage would be unchanged in both the short run and the medium run.

Explanation / Answer

Ans

1 C is right answer. In short run AD does not shift. In longrun AD shofts

2 c and s right answer. Similar reason as in A

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