A. B. If membership falls in labor unions and unions become less popular, then:

Question

A.

B.

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

Explanation / Answer

Question 1:

The correct answer is: production costs will fall, SRAS will shift to the right, increasing equilibrium GDP and lowering the aggregate price level.

Reason: Unionized workers are generally higher paid than non-union workers, a drop in the percentage of the workers that are unionized will mean that wages, on average, will fall. Labor costs are the main portion of aggregate supply. Therefore, if wages drop, the short run aggregate supply curve will shift to the right. It then follows that the equilibrium price level will drop, and real national output will increase.

Question 2

The correct answer is:

to the left; recessionary gap; fall

When the shortrun equilibrium is to the left, we have a recesionary gap and should expect prices to fall.

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