Answer to Question #223855 in Macroeconomics for Apex

Question

Suppose that the economy starts at the natural level of output and that due to reforms in job protection laws in favor of workers, the AS shifts from its original position. a. What is the short-run effect on output and prices? b. What happens to output and prices over time (i.e. in the medium run)?

Answer 1

a)In short run the  job protection laws in favor of workers will lower the input and rise the prises.

b) In time there will be inflation due to the increased rise of prices with reduced output.