Demand Shocks

Any change that lowers the quantity that buyers wish to purchase at any given price shifts the demand curve to the left.

Increasing the wage for all employees will cost a lot of money for employers. Business will be faced with two decisions, either “raise their prices”, or “simply cut employees or reduce benefits” (Williams). If they choose to raise up prices, then there will be no benefit for the increase of wage. Employees will get an increase in wage, but so is prices of almost everything. And if businesses choose to cut employees and benefits, then the number of unemployment could possibly arise, and the benefits such as paid vacations and PTO, can be easily get demolished.

In the long run some jobs wages would rise do to finding a middle ground in production versus demand, but in the beginning wages would drop severely as many companies would be forced to close their doors overnight due to no employees. Some companies would fold due to not being able to hire people quick enough to remain in business, others would suffer serious setbacks. Wages would drop as businesses would lose money while trying to staff positions immediately. Once production was back on track and people were able to buy more goods some wages may increase but that would be after several years of having great sales, demand, and perfect production.Part B

wage would contribute to a better economic growth pattern, and reverse the trend of financial

. And also according to econedlink.com, when an economy is at full employment, no more workers can be hired for additional job. But now given the high unemployment in US right now, there should be enough workers available for service or production. Although US’s current GDP may be below its potential right now, a change

As economic growth increases moderately in 2014, the rate of inflation is expected to remain below 2 percent. The price of goods in the country will continue to be restricted by global competition and use of production capacities that are relatively low as compared to historical averages. In addition, the inflation rate will remain below 2 percent because of decrease in energy prices and small increase in the prices of food. Nonetheless, while energy prices continue to reduce this year, the percentage of the decrease will be less while food prices may regain normal rate of growth.

downward in part because when the price level falls, the real wealth of the public falls, and this induces people to change their consumption.

Three reasons the aggregate-demand curve slopes downward are the wealth effect, the interest-rate effect, and the exchange rate effect. The wealth effect explains that when the price level decreases, each consumer is wealthier because the real value of his or her dollar has increased. Wealthier consumers spend more, increasing the demand for consumption goods and services. Conversely, if the price level rises, the real value of the dollar will decrease, effectively making consumers poorer. Poorer consumers will spend less on consumption, decreasing the demand for goods and services.

Elasticity : rising or falling price lead changes in quantity of demand, and the quantity of supply and this so-called elasticity

As consumption is a component of AD, the AD curve will shift leftwards from AD1 to AD2.With inflation devaluing money, workers will likely ask for higher wages so that their real disposable incomes will be the same as previously before prices rose. This would also mean firms’ costs of production will rise causing the SRAS curve is shift leftwards, this will likely lead to a fall in investment from firms into research and development due to the lack of business confidence, so less new products will be created and produced, potentially slowing down economic growth. This will shift the LRAS curve and AD curve leftwards, as investment is a component of AD and economic growth is represented by LRAS (factors of production).

In any economy, once people realize that price levels are rising, a vicious cycle begins. People will start to ask for higher wages, anticipating higher price

suggests that, in the short term, the economy will be able to reduce unemployment below the

Real GDP can be calculated with the use of prices derived from a given base year, and this helps in the adjustment to changes in price. Through this perspective, it becomes possible for the real GDP to measure accurately changes relating to output

Higher Wages and Higher Prices Inflation involves changes in both prices and wages, and can be initially caused by either. Therefore, in this essay I will look at two cases of inflation, one, which is caused by a change in aggregate demand, and one, which is caused by a change in aggregate supply. Both of these will have relation to prices and wages. I will then examine the fiscal and monetary policy responses available to government in either case.

If labor market works – that is, if the supply-demand law is true, the logical result of the labor shortage would be wages increase.