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In the last session we saw in class how we can generate the aggregate supply...

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Accounting

In the last session we saw in class how we can generate the aggregate supply curve starting from the labor market. The starting point was an increase in GDP (Y) and through 4 steps, we arrived at an increase in prices (P): Higher Y=> higher N (number of workers) => lower unemployment => higher wages => higher prices. This results in a rising aggregate supply curve. Now you have to explain the aggregate supply curve starting from a decrease in GDP (Y) to reach a decrease in prices (P) through the same 4 steps. You must explain each step as we did in class. Remember that in the explanations you must use Okun's Law, the production function, the wage equation and the price equation, as appropriate. Finally, you must draw the upward supply curve, since in this case we would be moving on the curve from a higher point to a lower point. Please, only word or PDF documents are allowed

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