Market Clearing in the Labor Market
point where the demand for labor matches the supply of labor at a specific wage rate, resulting in no surplus or shortage.
the market clearing price is the point where….
supply equals demand
_______ will allow the labor market to come back to equilibrium, at full employment.
- the disequilibrium in wages only affects the _______ and NOT the ____
“flexible wages”
SRAS; LRAS
Since the AS curve is vertical in the long run, the reduction in AD affects the _______, but not the level of ______
price level
output
Exogenous changes in aggregate supply or aggregate demand are called ______
These _____ that disrupt the economy push output and unemployment AWAY from their ________.
shocks
natural levels
A shock that affects aggregate supply is called a…
A shock that affects aggregate demand is called a….
supply shock.
demand shock.
stabilization policy to refer to the …
-seeks to dampen the business cycle by keeping output and employment as close to their natural rate as possible.
policy actions taken to reduce the severity of short-run economic fluctuations
An adverse supply shock pushes up …
costs and prices.
stagflation
a combination of increasing prices and declining level of output.
In response to an adverse supply shock, the gov can …
- The cost of this policy is a permanently higher level of _____.
increase AD to prevent a reduction in output
prices
