4.3.2 Practice: Investigate Long-Run AD/AS Equilibrium

Economic news leads U.S. households to expect a recession. What happens to the AD/AS model in the short term as a result of this news?

A decrease in aggregate demand

Economic news leads U.S. households to expect a recession. What is the short-run effect of this news?

A decrease in the price level

Economic news leads U.S. households to expect a recession. What is one of the effects of the decrease in aggregate demand that results from news of a recession?

A reduction in nominal wages

The U.S. government passes a law that reduces the length of the work week to 30 hours but requires that each worker is still paid what he or she previously made per week. What would be the long-term impact of the shortened work week?

An increase in the price level and a decrease in RGDP

The U.S. government passes a law that reduces the length of the work week to 30 hours but requires that each worker is still paid what he or she previously made per week. How would this new law affect the economy in the short run?

Productive output would decrease.

Legal changes that weaken the bargaining power of labor unions are made in the United States. What happens to the AD/AS model in the short term when these legal changes are made?

The AS curve shifts to the right.

Consider a long-run situation in which a legal change reduces the bargaining power of labor unions, but price level and RGDP then have time to return to the same level as before the change. Why do both the price level and RGDP return to the same level in the long run?

When RGDP rises after a rise in AS, unemployment falls, bringing up wages and decreasing AS again.

Legal changes that weaken the bargaining power of labor unions are made in the United States. What is the short-term effect of these legal changes?

Wages are reduced.

Legal changes that weaken the bargaining power of labor unions are made in the United States. Which of these takes place when wages are reduced as a result of a legal reduction in the bargaining power of labor unions?

The price level falls and RGDP rises.

The U.S. government passes a law that reduces the length of the work week to 30 hours but requires that each worker is still paid what he or she previously made per week. Which of these would occur in the short-term as a result of the shortened work week?

The price level would increase.