The Short-Run Aggregate Supply Curve Is π = πE

question 16

Essay

The short-run aggregate supply curve is π = πe + 0.8 (Y - 20) + ρ. Suppose inflation last year was 5 percent, current output is 20, and there is a price shock of 2 percent. Suppose, further, that potential output rises next year to 21, while output remains at 20 and next year's price shock is zero. Calculate and explain next year's inflation.

---

Definitions:

Overt Power

The visible, explicit, and acknowledged capacity to influence others or the outcome of events.

Coercive Power

The ability to influence others' behavior through threats, punishment, or sanctions.

Employees' Participation

The involvement of employees in making decisions that affect their work and the organization.

Fostering Participation

Encouraging and facilitating engagement and active involvement of individuals or groups in activities, decision-making processes, or projects.