Assume that the economy follows the Classical Model assumptions.
Part 2
a
draw a new aggregate demand (AD) curve reflecting an increase
in the amount of money in circulation. where does the curve shift?
The AD curve would shift to the right, indicating an increase in the overall level of demand in the economy. This is because with more money in circulation, consumers and businesses have more purchasing power and are able to buy more goods and services at each price level. Therefore, the new AD curve would be located to the right of the original AD curve.
b. During the rapid adjustment period (that results from the change in the AD curve), the economy will immediately tend toward a price level that
During the rapid adjustment period that results from a shift in the AD curve, the economy will immediately tend toward a new equilibrium price level where the new AD curve intersects with the short-run aggregate supply (SRAS) curve. This is because in the short run, prices are sticky and do not adjust immediately to changes in demand. Therefore, the shift in AD will result in a temporary imbalance between supply and demand, leading to either a shortage or surplus of goods and services in the economy. This imbalance will put upward or downward pressure on prices, eventually leading to a new equilibrium price level at the intersection of the new AD curve and SRAS curve.
c. Now that the macroeconomy is in a disequilibrium, what happens in the labor market?
A.
Wages decrease to reuduce production
.
B.
Unemployment decreases
,
which increases
wages.
C.Workers unionize to negotiate higher wages nbsp so the economy continues to overproduce.
Workers unionize to negotiate higher wages nbsp
so the economy continues to overproduce.
D.
The government imposes a minimum wage to support the economy.
C. Workers unionize to negotiate higher wages so the economy continues to overproduce. In a situation of temporary disequilibrium where demand exceeds supply, workers may take advantage of the situation and demand higher wages through unionization and collective bargaining. This will lead to higher labor costs and may contribute to overproduction or supply exceeding demand in the long run. Therefore, this can lead to a prolonged disequilibrium and potential problems such as inflation and reduced economic growth.
wrong answer
I apologize for the mistake. The correct answer to the question "Now that the macroeconomy is in a disequilibrium, what happens in the labor market?" would be:
B. Unemployment decreases, which increases wages.
When the AD curve shifts to the right, there is an increase in demand for goods and services, resulting in the need for firms to increase production. To increase production, firms will increase their demand for labor, leading to a decrease in unemployment rate and an increase in wages as workers become scarce. This increase in wages may in turn contribute to an upward pressure on prices, leading to a decrease in the quantity of goods and services supplied in the long run.
d. As the wage increases
,
the
A.demand for labor increases comma reinforcing nbsp the expansion.
demand for labor increases comma reinforcing nbsp
the expansion.
B.supply of labor decreases.
supply of labor decreases.
C.
demand for labor decreases
and production decreases
back to the full employment level.
D.
quantity demanded of labor decreases
,
while the law of supply increases
the number of workers seeking jobs.