The country of Lenova is planning to cut down its immigration by 30%. The country has...

The country of Lenova is planning to cut down its immigration by 30%. The country has an aging work force and economists have criticized this policy by saying it can hurt economic growth in the country.

Use the 3-panel diagram done in class to show how this policy can impact economic growth in the country. Provide short explanations on how each of the diagram is changing. Do you agree with the criticism of the economists?

Solutions

Expert Solution

Solution:-

Given that

In the labour market, initial equilibrium occurs at point E1. immigration and aging work force will reduce labour supply and shift curve leftwards to and thus at new equilibrium E2 wages have increased and labour employed has decreased.

A decrease in labour employed from L1 to L2 will reduce the total output produced from y1 to y2 in the prediction function framework.

As production decreases in the economy, aggregate supply curve will shift leftwards to As' and equilibrium moves from point E1 to E2

where prices have increased to op2 and output has decreased to oy2

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Rahul Sunny answered 1 year ago

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