-Refer to the above figure. Suppose the economy's initial equilibrium is represented by the intersection of LRAS₁ and AD₁. Suppose there is a persistent reduction in labor force participation, which reduces total planned production at any given price level. The resulting change in the economy's long-run equilibrium position would be represented by a
A)movement from A to C.
B)movement from A to B.
C)movement from B to C.
D)movement from C to A.

Question

-Refer to the above figure. Suppose the economy's initial equilibrium is represented by the intersection of LRAS₁ and AD₁. Suppose there is a persistent reduction in labor force participation, which reduces total planned production at any given price level. The resulting change in the economy's long-run equilibrium position would be represented by a
A)movement from A to C. 
B)movement from A to B. 
C)movement from B to C. 
D)movement from C to A.

Quizplus · Accepted Answer

A persistent reduction in labor force participation decreases the long-run aggregate supply (LRAS), shifting it leftward from LRAS₁ to LRAS₂. This results in a new equilibrium at a lower output level and potentially higher price level, represented by a movement from point A to point C.

-Refer to the Above Figure