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Suppose we are in a country with a birth-rate below replacement level. Because of this, the...

Suppose we are in a country with a birth-rate below replacement level.

Because of this, the working-age population will eventually see a decline and labor supply will decrease.

What effects will this have on the following:

wages will (decrease,increase,stay the same), number of hours worked will ( decrease, increase, stay the same), potential gdp will ( decrease, increase, stay the same)

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Answer #1

If the workable population in the economy declines then in that case the supply curve of the labors will shift to the left and that will lead to an increase in the wages and number of hours worked will fall and this will also shift the LRAS to the left and the potential GDP in the market will fall with it.

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