Suppose the economy is in long-run equilibrium. Now suppose that laws are passed banning labor unions resulting lower labor costs and the lower labor costs are passed along to consumers in the form of lower prices.
(a) Use the aggregate demand/aggregate supply model to illustrate graphically the impact in the short run and the long run of this supply shock. Be sure to label: (a) the axes; (b) the curves; (c) the initial equilibrium values; (d) the direction the curves shift; (e) the short-run equilibrium values; and (f) the long-run equilibrium values.
(b) Prepare three "time graphs" as presented in class to show the short-run and long-run impacts on: (Y), (P) and unemployment.