We saw that if an economy has a negative shock to aggregate demand (maybe the COVID-19 lockdowns), that market forces will push the labor market back to equilibrium. Explain the steps that make this happen. Support your answer using graphs. 1. How will firms respond when they face a negative shock to aggregated demand? What will happen to total output? How will this affect firm labor hiring decisions? 2. Imagine you are a worker and you see that many workers have lost their jobs while other workers are having their wages cut. How might this affect your spending and saving decisions? 3. How do lower wages affect firm pricing and production decisions? How will these decisions affect aggregate demand? 4. How does an increase in aggregate demand affect the labor market?