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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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