1 Oil Supply Shock

Suppose there is a dispute over oil prices in the world oil market. As a result, less oil is available to be purchased by Australian firms. Model this as a decrease in shortrun labour productivity and explain how this reduction in oil supply is captured in our labour market model. Specifically, explain why the Job Creation Curve and/or the Wage Setting Curve shift and how this affects the equilibrium of the labour market.

2 Demand Shock

Suppose that there is an increase in government expenditure that causes an unexpected increase in the inflation rate. Explain why the Job Creation Curve and/or the Wage Setting Curve shift and how this affects the equilibrium of the labour market