-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 will reduce the long-run aggregate supply, shifting the LRAS curve to the left. This will lead to a new equilibrium at a lower price level and a lower level of output, represented by the intersection of LRAS2 and AD1.

-Refer to the Above Figure