Unformatted text preview: GDP falls, the change in P is unknown. GDP* probably falls as L* falls (fewer workers hired in equilibrium) Note- Graph would look exactly the same if we had had an increase in oil prices instead of an increase in the L tax. Ellie’s Notes: Grah AD2 Imagine AD goes up- what will happen in the long run in labor markets and good markets> Short run: move along AS as P rises, w/p and firms can hire more workers (L up, GDP up) Long run: Vertical AS in the long run: why? Workers are working more but earning less in real terms. That’s crazy! So they threaten to quit unless they get paid more. Both happen: w/p goes up and firms lay off workers (move along LD curve, shifting AS as costs rise with the rise in w)...
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- Fall '08
- Macroeconomics, government spending, investment bank, Ellie