The New Zealand economy is initially in long-run equilibrium. But the economy is hit by a price increase in imported pesticides which are essential for the state's agricultural sector. In the short run, the short-run aggregate supply curve shifts right. In the long run, the price level returns to its original value, output returns to its potential, and real wages increase. In the short run, the short-run aggregate supply curve shifts left. In the long run, the price level returns to its original value, output returns to its potential, and real wages decrease. In the short run, the short-run aggregate supply curve shifts right. In the long run, the price level is lower than its original values, output returns to its potential, and real wages do not change. In the short run, the short-run aggregate supply curve shifts left. In the long run, the price level is lower than its original value, output returns to its potential, and real wages do not change. In the short run, the short-run aggregate supply curve shifts left. In the long run, the price level is lower than its original value, output returns to potential, and real wages increase.
Question
The New Zealand economy is initially in long-run equilibrium. But the economy is hit by a price increase in imported pesticides which are essential for the state's agricultural sector.
In the short run, the short-run aggregate supply curve shifts right. In the long run, the price level returns to its original value, output returns to its potential, and real wages increase.
In the short run, the short-run aggregate supply curve shifts left. In the long run, the price level returns to its original value, output returns to its potential, and real wages decrease.
In the short run, the short-run aggregate supply curve shifts right. In the long run, the price level is lower than its original values, output returns to its potential, and real wages do not change.
In the short run, the short-run aggregate supply curve shifts left. In the long run, the price level is lower than its original value, output returns to its potential, and real wages do not change.
In the short run, the short-run aggregate supply curve shifts left. In the long run, the price level is lower than its original value, output returns to potential, and real wages increase.
Solution
In the short run, the short-run aggregate supply curve shifts left. In the long run, the price level returns to its original value, output returns to its potential, and real wages decrease.
Here's why:
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A price increase in imported pesticides increases the cost of production for the agricultural sector. This leads to a decrease in short-run aggregate supply, so the short-run aggregate supply curve shifts to the left in the short run.
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In the long run, the economy adjusts to this decrease in supply. The price level initially increases due to the decrease in supply, but eventually returns to its original value as the economy adjusts and returns to its potential output.
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As for real wages, they are likely to decrease in the long run. The increase in production costs due to the price increase in pesticides can lead to downward pressure on wages as firms seek to cut costs. Therefore, the correct answer is: In the short run, the short-run aggregate supply curve shifts left. In the long run, the price level returns to its original value, output returns to its potential, and real wages decrease.
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