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Chapter 24: Q 11. (page 601)

What impact would a decrease in the size of the labor force have on GDP and the price level according to the AD/AS model?

Short Answer

Expert verified

This will cause a negative impact overall.

Step by step solution

01

Step 1. Definition

An AD/AS (aggregate demand/aggregate supply model) is a method of demonstrating national income calculation and price level changes.

02

Step 2. Explanation

A decrease in the size of the labor force will show a leftward shift in both, one is probable GDP and the short-run aggregate supply (SRAS), this happens due to the fall in the supply of goods and services in the short run and when a consumer spends less. This will lead to a decline in equilibrium level and increased price level.

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Most popular questions from this chapter

What is Keynes’ law?

Economists expect that as the labor market continues to tighten going into the latter part of 2015that workers should begin to expect wage increases in 2015and 2016. Assuming this occurs and it was the only development in the labor market that year, how would this affect the AS curve? What if it was also accompanied by an increase in worker productivity?

Name some factors that could cause the SRAS curve to shift, and say whether they would shift SRAS to the right or to the left.

Do neoclassical economists believe in Keynes’ law or Say’s law?

If new government regulations require firms to use a cleaner technology that is also less efficient than what they previously used, what would the effect be on output, the price level, and employment using the AD/AS diagram?
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