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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

If Congress cuts taxes at the same time that businesses become more pessimistic about the economy, what is the combined effect on output, the price level, and employment using the AD/AS diagram?

During spring 2016the Midwestern United States, which has a large agricultural base, experiences above-average rainfall. Using the AD/AS diagram, what is the effect on output, the price level, and employment?

What is on the horizontal axis of the AD/AS diagram? What is on the vertical axis?

Explain why the short-run aggregate supply curve might be vertical in the neoclassical zone of the SRAS curve. How might we tell if we are in the neoclassical zone of the AS?

If households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run? What about the long run?
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