If membership in labor unions falls, production costs will:
A) increase, and SRAS will shift to the left, decreasing equilibrium GDP and increasing the aggregate price level.
B) fall, there will be a downward movement along SRAS, equilibrium GDP will increase, and aggregate price level will fall.
C) not change and AD will shift to the right, increasing equilibrium GDP and aggregate price level.
D) fall and SRAS will shift to the right, increasing equilibrium GDP and lowering the aggregate price level.

Question

Quizplus · Accepted Answer

A decrease in labor union membership often leads to lower wages and benefits, which can reduce production costs. This reduction in production costs can cause the short-run aggregate supply (SRAS) to shift to the right, leading to an increase in equilibrium GDP and a decrease in the aggregate price level.

If Membership in Labor Unions Falls, Production Costs Will