Suppose that several provinces in Canada raise the minimum wages effective July 1st, 2021. Use the AS-AD model to answer the following questions and support your answer by ONE AS-AD diagram and be sure to show the shift(s) of curve(s) and identify the new equilibriums in the diagram.

a) What happens to the short-run equilibrium levels of output and price? Explain.

b) What happens to the long-run equilibrium levels of output and price? Explain.

c) If the policy makers want to use monetary policy to keep output from changing in the short run. What should they do? Explain.

Answer rating: 100% (QA)

Solution a When several provinces in Canada raise the minimum wage it increases the cost of labor fo... View the full answer