Inflation for the past several years has been 3% and peoplebelieve it will continue to be 3% in the future. The economy startsout at full employment.
a. If a worker earned $20 an hour last year, how large is theraise you would expect the worker to receive in the next year’scontract? (Give a $ amount.)
b. If all workers experience the same percentage wage change,will the AS curve shift up or down? Briefly explain.
c. Will the Fed need to increase or decrease AD to keep theeconomy at full employment? Briefly explain.
