Question

Small Case 4. Country experiences a decrease of ( the number of expats )

What is changing, AD or SRAS?

1. Will it increase or decrease? Explain how this change will take place.
2. Draw the appropriate change below.
3. What happened to Real GDP?
4. What phase of the business cycle would the economy be in?
5. What is likely happening to unemployment?
6. What happened to price level?

Answer 1

Decrease in number of expats will reduce labor force in the country which will result in rise in wages paid by producers to labor and eventually raise cost of production. It will affect short run supply curve because affect producer behavior.

a) It will shifts supply curve to its left and shift suppply curve backward / upward because of decrease in aggregate supply of goods.

b) Real GDP fell because there is fall in quantity traded in the market due to decrease in supply.

c) Economy will set it into recessionary phase of business cycle where real GDP starts faling.

e) Unemployment is likely to rise because of fall in real GDP.

f) Price level will rise because producers will pass on some of the rise in cost of production on the consumers of the market.