According to the Federal Reserve, household wealth in the United States fell by more than $11 trillion in 2008

Predict the effect this decrease in wealth had on the equilibrium real wage and level of employment, and use a graph to support your answer.


The decrease in wealth will shift the labor supply curve to the right. When wealth decreases, individuals can purchase fewer goods and services than they currently buy while working the same number of hours. We would expect individuals to increase the quantity of labor supplied at each real wage, which increases the supply of labor, shifting the labor supply curve to the right. Equilibrium would move from point A to point B. This results in a decrease in the equilibrium wage (w1 to w2 ) and an increase in the equilibrium level of employment (L1 to L2 ).

Economics

You might also like to view...

Which type of unemployment is a permanent and healthy phenomenon in a dynamic economy?

A) cyclical B) avoidable C) structural D) frictional E) unavoidable

Economics

One factor which brought on the recession of 2007-2009 was the end of the housing bubble

Indicate whether the statement is true or false

Economics

Unemployment payments

a. rise during a recession and thus reduce the severity of the recession b. rise during a recession and thus increase the severity of the recession c. rise during inflationary episodes and thus reduce the severity of the inflation d. fall during inflationary episodes and thus increase the severity of the inflation e. fall during a recession and thus increase the severity of the recession

Economics

In the open-economy macroeconomic model, as the exchange rate rises,

a. desired net exports fall, so the quantity of dollars supplied rise. b. desired net exports fall, so the quantity of dollars demanded falls. c. desired net exports rise ,so the quantity of dollars supplied falls. d. desired net exports rise, so the quantity of dollars demanded rises.

Economics