Please Explain: Why the Aggregate Supply curve becomes increasingly steeply slop
ID: 1230479 • Letter: P
Question
Please Explain:
Why the Aggregate Supply curve becomes increasingly steeply sloped at levels of RGDP near "full employment" and becomes especially steeply sloped beyond "full employment" RGDP Why might the rate at which the Aggregate Supply curve shifts vertically upward increase when an economy produces beyond full employment. (Hint: think about the effect of very low unemployment rates on the balance of bargaining power between employers and workers) Why inflation rates are likely to rise when an economy expands beyond full employment capacity output. Draw an aggregate supply-aggregate demand diagram to illustrate your answer. (Hint: utilize your answers to A) & B) to answer this question)Explanation / Answer
a) as below full employment supply of labour is more the demand for labour so to increase output to full employment RGDP they will heir labour at less real wage . so it becomes steeply sloped near full employment. while beyond full employment to increase output they need more labour. as it is already full employment. so demand is greater than supply. so real wage will be constant . so it is especially steeply sloped beyond full employment b)when economy produces beyond full employment real wage will be constant. as workers will bargain more wages as demand for labour is greater than supply. so agregate supply curve shift vertically upward with increasing rate beyond full employment