Real Wages In the accompanying exhibit how does the real wag

(Real Wages) In the accompanying exhibit, how does the real wage rate at point c compare with the real wage rate at point a? How do nominal wage rates compare at those two points? Explain your answers. Long-Run Adjustment When the Price Level Exceeds Expectations Potential output LRAS SRAS 120 SRAS110 120 115 AD 110a 17.2 Real GDP (trillions of dollars) 170 Expansionary gap

Solution

The real wage at a >c since same real GDP at c is divided by higher price.

Nominal wage at C is higher than at a since same real GDP is multiplied by higher price level