In the long run workers will be forced to take

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In the long run , workers will be forced to take nominal wage cuts thus lowering inflation expectations and the costs of production. The short run aggregate supply curve will shift to the right towards the
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long run aggregate supply curve untill full employment is restored. The price level decreases , real GDP increases. 4. According to Keynesian view , price and wages are not determinant for employment. He believes that aggregate demand/expenditure on goods and services determine the economic level. To overcome the unemployment problem ,government interference is needed to achieve full employment and sustainable economic growth. 5. Supply-side policy can be used to influence the economic activity based on the lower inflation. Shifting Aggregate supply to the right will causes a lower price level. By making the economy more efficient , supply-side policies will help to reduce cost push inflation. Next is lower the unemployment. Supply-side policies can help reduce structural , frictional and real wage unemployment and therefore help reduce the natural rate of employment. Other than that , supply-side influence the economic activity by improved the economic growth. Supply-side policies can increase the sustainable rate of economic growth by increasing Aggregate Supply. Lastly is improved the trade and balance of payment. By making firms more productive and competitive , firms are able to export more goods and services. 6. a) Fiscal Policy Fiscal policy involves the government changing tax and spending levels in order to influence the level of Aggregate Demand. To reduce inflationary pressures the government can increase tax and reduce government spending. This will reduce AD.
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