Question

1. a. On a graph, show the effect of a drop in velocity due to “animal...

1. a. On a graph, show the effect of a drop in velocity due to “animal spirits” in the short run if wages are “sticky.”

b. Now show what will happen in the long run if nothing else is done. What will happen to nominal wages?

c. If the central bank wants to prevent the short-run effects in part a, what could they do?

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