-Refer to Figure 13.9. In panel a) of the diagram growth in the labour force shifts Y_P to Y_P'. This is called a ________________ and the new short run equilibrium is determined by ________.

Question

Quizplus · Accepted Answer

A growth in the labor force represents a permanent change in the economy's ability to supply goods and services, hence it is a permanent supply shock. The new short-run equilibrium is determined by the aggregate demand curve (AD) and the new aggregate supply curve (AS₁).