Assign4 - Assignment 4 Complete the following questions and...

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Assignment 4 Complete the following questions and submit to the assignment dropbox. Part 2 You are watching the evening news on television. The news anchor reports that union wage demands are much higher this year because the workers anticipate an increase in the rate of inflation. Your roommate says, "Inflation is a self- fulfilling prophecy. If workers think there are going to be higher prices, they demand higher wages. This increases the cost of production and firms raise their prices. Expecting higher prices simply causes higher prices." 1. Is this true in the short run? Explain. No. In the short run, because nominal wages are based on expected prices and do not respond immediately when the actual price level turns out to be different than what was expected. 2. If policymakers do nothing and allow the economy to adjust to the natural rate of output on its own, does expecting higher prices cause higher prices in the long run? Explain. No. If Fed does not increase the money supply, there will be no inflation,
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Assign4 - Assignment 4 Complete the following questions and...

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