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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

On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because the product in question is now relatively less expensive than substitute products. Explain why aggregate demand does not increase for the same reason in response to a decrease in the aggregate price level. In other words, what causes total spending to increase if it is not because goods are now cheaper?

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.

If foreign wealth-holders decide that the United States is the safest place to invest their savings, what would the effect be on the economy here? Show graphically using the AD/AS model.

What is the Keynesian zone of the SRAS curve? How much is the price level likely to change in the Keynesian zone?

Suppose the U.S. Congress passes significant immigration reform that makes it more difficult for foreigners to come to the United States to work. Use the AD/AS model to explain how this would affect the equilibrium level of GDP and the price level.
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