Question

Suppose the government misjudges the natural rate of unemployment to be much lower than it actually is, and thus undertakes expansionary fiscal and monetary policies to lower it. a. These policies might at first succeed because multiple choice 1 in the long run, as aggregate demand increases, unemployment is reduced. in the long run, as aggregate demand decreases, unemployment is reduced. in the short run, as aggregate demand increases, unemployment is reduced. in the short run, this action will decrease aggregate demand and unemployment. b. These policies might at first succeed, but eventually multiple choice 2 in the long run, as aggregate demand increases, the aggregate supply curve will shift right, reducing unemployment and returning the economy to full employment. in the short run, as aggregate demand increases and unemployment is reduced, workers will demand higher wages, the aggregate demand curve will shift left, and the economy will return to the natural rate of unemployment. in the short run, this action will decrease aggregate demand, lower unemployment, and return the economy to full employment. in the long run, as aggregate demand increases and unemployment is reduced, workers will demand higher wages, the aggregate supply curve will shift left, and the economy will return to the natural rate of unemployment.

Answer 1

Answer:

In the long run as aggregate demand increases and unemployment is reduced workers will demand higher wages the aggregate supply curve will shift left, and the economy will return to the natural rate of unemployment.

Explanation:

In the case when the government misjudge the natural unemployment rate and it is less than the actual one so in the long run, the aggregat demand rises also the unemployment decreased due to which the workers demand for higher wages is also decreased. This lead to the shifting of the aggregate supply to the left and the economy would return to the natural unemployment rate