Figure 17-1

-In the Friedman "Fooling Model" a ________ causes the labor supply curve to shift,and in Figure 17-1 above,if the initial equilibrium is at point C then,the new level of price expectations,POe is ________ than the initial level of Pe.
A)change in the money supply;less than
B)change in real wages;less than
C)change in nominal wages;greater than
D)change in price expectations;greater than

Question

Figure 17-1
 
-In the Friedman "Fooling Model" a ________ causes the labor supply curve to shift,and in Figure 17-1 above,if the initial equilibrium is at point C then,the new level of price expectations,POe is ________ than the initial level of Pe.
A)change in the money supply;less than 
B)change in real wages;less than 
C)change in nominal wages;greater than 
D)change in price expectations;greater than

Quizplus · Accepted Answer

According to the Friedman "Fooling Model", a change in price expectations causes the labor supply curve to shift. Therefore, if the initial equilibrium is at point C, a change in price expectations would lead to a new equilibrium with a higher price level than the initial equilibrium. Hence, the new level of price expectations, POe, is greater than the initial level of Pe. Therefore, choice D is the correct answer.

Figure 17-1 -In the Friedman "Fooling Model" a ________ Causes the Labor