Exhibit 20A-1 Policy Alternatives Assume that the economy depicted in Panel (b) of Exhibit 20A-1 is in short-run equilibrium where AD₁ equals SRAS₁. Keynesian theory argues: A) nominal wages will fall as long as employment remains above the natural level of unemployment. B) lower wages will result in a shift from SRAS₁ to SRAS₂. C) long-run equilibrium will be established at Y_p and P₁. D) government intervention must shift AD₁ rightward to AD₂.

Question

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The Answer of Exhibit 20A-1 Policy Alternatives Assume that the economy depicted in Panel (b) of Exhibit 20A-1 is in short-run equilibrium where AD₁ equals SRAS₁. Keynesian theory argues: A) nominal wages will fall as long as employment remains above the natural level of unemployment. B) lower wages will result in a shift from SRAS₁ to SRAS₂. C) long-run equilibrium will be established at Y_p and P₁. D) government intervention must shift AD₁ rightward to AD₂.

Exhibit 20A-1 Policy Alternatives Assume That the Economy Depicted in Panel