President elect Trump would like to increase trade barriers (through high tariffs or by renegotiating trade deals which have had led to lower barriers to trade) in order to keep more jobs in the U.S. Assume input costs (wages) are higher in the U.S. than abroad.
a. How would this affect the aggregate supply curve? Would it shift to the left or to the right? Explain.
b. What would happen to the price level and output in the U.S economy?
c. Assuming the AS curve shifts in the direction predicted in part (a), what would happen to the unemployment level in the US.? Would it increase or decrease?
d. Who would be helped by this policy? Who would be hurt?