Answer to Question #96876 in Macroeconomics for Tiffany

Question

2. Apply your knowledge of the AD/AS model to predict the effect on economic variables (i.e., P, RGDP, interest rates, wages, savings and spending) of some events on the U.S. economy. Diagram the effect of the following events. Be sure to explain the effects in the short run and effects in the long run for each question, in words. To keep things clear, assume that in each case the economy starts out at long-run equilibrium.
a. Labor unions become better organized, and this allows them to drive up wages in the short run in the U.S.
Answer:

Answer 1

An increase in salary does not motivate people to work more and better, and, as a result, hinders the development of business and the economy as a whole.

in the short term, an increase in salaries will entail an increase in demand, but in the long term, demand, savings and consumption will return to their original value

If salaries rise and labor productivity remains at the old level, producers are forced to cut costs. They can:

- dismiss part of the workers

- raise prices for their products

- use a combination of these methods.

Ultimately, this will lead to higher prices, inflation and unemployment. this can be called oppression of the economy, or crisis. And in times of crisis, people's well-being decreases, people and organizations are forced to use loans. With high demand and high risk, the interest rate will increase.