Question

3. Suppose we decide to require international students to study on campus, even though most universities are promoting online classes in response to COVID-19, and this causes some immigrants working in the United States to decide to leave the country for more welcoming nations like Canada or the United Kingdom. Thinking in terms of our AD-AS model, which curve will this shift, the AD curve or the AS curve and why? How will this affect real GDP and the price level? (6 points)

Answer 1

Answer - The flow of immigrants to Canada and UK will decrease the labor force in US. Due to this US will have lesser workers to continue the production. Hence the productivity capacity of the economy will decrease as a result of lower number of workers. This will decrease the Aggregate Supply of the economy. The decrease in the AS will lead to leftward shift of AS and hence the price level in the economy will increase because of lesser supply and the real GDP will fall in the economy due to decrease in the output produced