2. Now, let's apply your knowledge of the AD/AS model to predict the effect on economic variables (i.e., P, RGDP, interest rates, wages, savings and spending) of some events on the U.S. economy. Diagram the effect of the following events. Be sure to explain the effects in the short run and effects in the long run for each question, in words. To keep things clear, assume that in each case the economy starts out at long-run equilibrium.

A. Labor unions become better organized, and this allows them to drive up wages in the short run in the U.S. (3 points)