What happens to long run aggregate supply if trade unions start to care more about employment than the real wage ?
From what i can tell , LRAS stays constant ( or moves to the right due to growth in GDP). Since any changes in the phillips curve, and hence the SRAS, only cause short run shifts.
1 Answer | Add Yours
Yes, you are correct about this. The long range aggregate supply curve never changes. It is always vertical since it is a long range curve and is not affected by short term factors. However, a change in attitude on the part of unions like the one you suggest ought to move the LRAS curve to the right. The reason for this is that one factor that can shift the curve is the quantity of resources that are available to the economy. If the unions come to be more interested in employment, they will allow wages to fall. If wages fall, employers will (all other things being equal) hire more workers. This means that more labor is available and the LRAS curve shifts to the right.
We’ve answered 319,423 questions. We can answer yours, too.Ask a question