Use a diagram similar to the following figure to illustrate the effect, on aggregate output and the real hourly wage, of

(a) an increase in labor demand and

(b) an increase in labor supply.

Transcribed Image Text:

Real Hourly Wage LS In the labor market, the demand and supply curves intersect to determine employment of 150 million workers. $25 - LD Number of Workers 150 million The production function shows that those 150 million workers can produce $10 trillion of real GDP. Total Output (Real GDP) Aggregate Production Function $10 Trillion = Full Employment Output 150 million Number of Workers