Imagine that in 2010 the economy is in long-run equilibrium.?

Question

Then stock prices rise more than expected and stay high for some time.What happens to the expected price level and what impact does this have on wage bargaining?

Answer 1

that hard to say because there a different reason's why stock prices go up.

though they usually all tie into the company doing well (or the people buying the stocks think they are doing well)

for example a company's stock price might have gone up because it cut cost and is saving a lot of money.

now if the reason they cut cost is because they fired people or cut people's wages then the impact is lower wages

but if the company cut cost because it found a new way to do something that is cheaper...then wages might stay the same or see some raise (especially if the new way needs workers with a little more skill)

Answer 2

If stock prices become high, income will also increase because investment will be high. If you look at aggregate supply and demand, with demand being equal to consumption + Savings(investment) + Government spending + NX, Demand will increase, in the short run causing output to increase and the price level to increase, but in the long run only causing price level to increase. This causes expected price level to increase so wages will also increase in the long run