Question

Question 5 (10%) (Word Limit: 200 words) Suppose you were a forecaster of the real wage rate, employment, output, the real interest rate, consumption, investment, and the price level. A shock hits the economy, which you think is a temporary adverse supply shock. a. What are your forecasts for each of the variables listed above (rise, fall, and no change)? (5%) b. What if the shock was really due to people's reduced expectations about their future income. Which variables did you forecast correctly, and which did you forecast incorrectly? (5%)

Answer 1

nak , (a) The gred wge decline enmplayment, olf ,consumption L investment 1. level price while the gread interest nakt the guise curve shifts down, instead af the FE teft. So, you 6) The IS wee Jave about shifty liming worong Variable excopt consumphion. The red wage, chrop; interest rabe d the powce level will decline; and every emplagment, 4 olp will mot chrnge; the good rea. will not' investment wwill guise.