An economy in its long-run equilibrium (i.e., output is at its
natural level). Draw a graph of the AS curve in the short run and
the AD curve and, in the graph, denote by A the pair ( Y,P) where
the economy finds itself. The economy is now hit by a shock: the
power of unions becomes temporarily very high so the cost of hiring
workers increases substantially.
(a) Is this a supply shock or a demand shock? Explain.
(b)...