(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
For part c, you are asked to examine the effects of greater union activity which leads to an increase in nominal wages. Again, we will start with our basic aggregate demand aggregate supply graph in equilibrium.
(Description)
Using the AD/AS model, in the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the change. Greater union activity leads to higher nominal wages. On the Figure there are graphs of aggregate supply and demand. Horizontal axis corresponds to the real GDP. Vertical axis corresponds to aggregate price level. Two straight lines (supply and demand) are plotted with supply line starting at origin and bisecting the quadrant and demand line crossing the axis at some equally distant from origin points. Lines intersect at point (Y1,P1). Lines are labeled AD and AS correspondingly.
(Speaker)
If unions are able to negotiate higher nominal wages for a large portion of the workforce, this will increase production costs and reduce profit per unit at any given aggregate price level. The short run aggregate supply curve will shift to the left.
(Description)
On the Figure there are graphs of aggregate supply and demand. Two straight lines (supply and demand) are plotted with supply line AS starting at origin and bisecting the quadrant and demand line AD crossing the axis at some equally distant from origin points. Lines intersect at point (Y1,P1). The line parallel to original supply line and shifted to the left is plotted and labeled AS2. The new point of intersection for new supply and original demand lines is found and labeled (Y2,P2). Arrow along aggregate price level axis is plotted up from P1 to P2. Arrows show the left shift of supply line.
(Speaker)
It is worth noting that an increase in nominal wages will shift the AD line to the right, causing output to increase.