Question

For this question, you are to use a graph to illustrate the change(s) and then explain the situation in one or two sentences. You may have to go back to earlier material to find some of the answers. You may assume that the economy is in a long-run macroeconomic equilibrium at the beginning of each part.

1. Draw the aggregate demand and aggregate supply model. Illustrate long-run macroeconomic equilibrium. (2.0 marks)
   
2. There is a decrease in the money wages paid to the workers, as unionization declines across the nation. How will the aggregate supply curve(s) change? (1 mark) What is the outcome in the short-run? (2 marks)
   
3. There is a decrease in exports due to trade disputes. Show the new short-run equilibrium and describe the process. (5 marks)

Answer 1

A.

Economy is at a long run equilibrium. Real output is at the potential level of output.

B

Lower money wage paid to the workers, reduces the cost of production. It cause AS to increase and shifts to the right. It decreases the price level as well in the short run.

C.

Due to decrease in export, net export of the GDP decreases. It causes AD to decrease and it shifts to the left.