Diagram 1 (product markets) This information that will price levels (PL) measured by the (price index) help you SKA$ curve 1. w=W/price index Diagram 2 (labor market) 2. W= $5500/labor and real wage(w) = money Wage (W) / price index 1.12 or 112 new SRAS curve price index =1.08, then w= 1.1 or 110 S abor $5093/labor 3. W= $5500/labor and 1.08 or 108 $5093/labor price index =1.1, then w= 1.06 or 106 $5000/labor 1.04 or 104 4. W= $53500/labor and price index =1.06, then w= $5000/labor $10 T/yr. $14TAyr. $16 TAyr. (I=trillion) 5. Although not to scale (y) Aggregate output ( measured by real GDP) 30 m 40 m 50 m quantity of labor assume real wage of $5093/labor is height to A. If the economy is initially in long-run equilibrium, using the graphs above, where AD curve is AD', and AS curves are LRAS and SRAS' determine the following values at this initial long run equilibrium. 1. Equilibrium price level = 2. aggregate output demanded = . aggregate output supplied = 4. equilibrium real wage (w) = 5. equilibrium money wage (W) = $5500/labor 6. quantity of labor demanded = 7. quantity of labor supplied = 8. Hopefully you recognize the economy is in an Full employment states with the absence of any inflationary or deflationary pressures B. Now assume Aggregate Demand shifts from AD' to AD'. Determine the short-run values at this partial equilibrium state: 1. Equilibrium price level = 2. aggregate output demanded = 3. aggregate output supplied = 4. real wage (w) = $5093/labor since price levels fall and money wages stay the same $5500/labor/1.08 5. Money Wage (W) = $5500/labor , since it is assumed in the short run that Money Wages stay the same 6. quantity of labor demanded if real wages rise to $5093/labor = 7. quantity of labor supplied if real wages rise to $5093/labor = 8. Now a macroeconomic problem exists and is called.C. Over the long run, laborers will compete against each for available jobs and bid the Money Wage down from $5500/labor to $5300/labor and firms will hire more laborers and produce more products shifting the SRAS curve from SRAS' to SRAS'. Determine the following new long run equilibrium values. Remember that AD curve has shifted to ADI 1. the new long run Equilibrium price level = 2. aggregate output demanded at the new price level[ = 3. aggregate output supplied at this new price level = 4.real wage (w) = $5000/labor, since price levels fall to 1.06 and Money Wages fall to ($5300/labor and $5300)/labor /1.06 =$5000/labor 5. Money Wages = $5300/labor 6. quantity of labor demanded, if real wages rise to $5000/labor = 7. quantity of labor supplied, if real wages rise to $5000/labor = 8. note: a macroeconomic problem no longer exists D. If you compare the long run equilibrium results in A with the long run equilibrium list what is different. 1. 2