10.Suppose the minimum wage were increased sharply. How would this affect the equilibrium price level and output level in the model of aggregate demand and aggregate supply in the short run? In the long run? In the short-run the SRAS curve shifts upwards, increasing ination and lowering output. While in the long-run the higher minimum wage could be absorbed with increased productivity and output and employment could rise as real wages decreased. 3.Use the model of aggregate demand and short-run aggregate supply to explain how each of the following would affect real GDP and the price level in the short run. a An increase in government purchases: The AD curves shifts to the right causing an increase in real income and the price level in the short-run. b A reduction in nominal wages: The SRAS curve shifts downward, causing and increase in real income and a lower price level