Econ: Ch 26 Money, the price level and inflation

Return to full employment after a recession

Increases real GDP in the short-run. Movement along graph on aggregate production function.

Real wage rate decreases

Quantity of labour demanded increases and supply decreases

Real wage rate increases

Quantity of labour supplied increases and quantity of labour demanded decreases

Shortage of labour

Real wage rate rises to eliminate it

Surplus of labour

Real wage rate falls to eliminate it

Increase in labour productivity

Real GDP increases at all quantities of labour, increase in demand and no increase in supply until the real wage rate then increases so labour supplied increases. Therefore the equilibrium quantity increases.

When real interest rate increases and expected profits increase for loanable funds

Moves up along the graph due to increased real wage rate and then it shifts right due to increased demand

Government budget surplus in loanable funds market

Supply curve increases and shifts right and a new equilibrium at a lower interest rate and higher demand

Government budget deficit in loanable funds market

Demand curve shifts right as it increases which then increases the interest rate and loanable funds equilibrium