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On the labor market, graph labor demand (Ld) and labor supply (Ls) under conventional assumptions. Discuss briefly what causes movements along each curve. Productivity growth has been very sluggish (small) but slightly positive. At the same time, in a larger change, wealth has fallen and expectations for future real wage are decreasing. Starting from an equilibrium situation in the market, please draw the graph with these movements (define first what is in the “x-y” space) and explain in words what you would expect to happen in the U.S. labor market?
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