Question

President Trump proclaimed his will to decrease the inflow of immigrants from Mexico. What are the consequences of such a restriction in short-run, medium-run, and long-run? (IS-LM, AS-AD, Solow)

Answer 1

1) Short run-

When we talk about the aggregate demand and supply, immigration for the while might not affect the short run demand and supply. It however will affect the money suuply and demand. As the immigrants will now be reduced, people who are investing and spending in the US market will reduce. As per solow's model, the population acts as an asset and hence when some skilled labor will leave the market the economy is bound to be affected. Employment opportunity will increase.

2) Medium Run:

In the medium run, the eocnomy will try to come at an equilibrium in terms of demand and supply, as the suppliers will have to cater a lower population. Also, it is obvious that money demands will reduce as the immigrants will now have lesser influx in the US economy. Solow's model states that now with absence of the immigrants there will be more productivity per labor.

3) Long run:

In long run the economy will go through more meployment opportunity. The money flow will be less as there will lesser people demanding money. A technological advancement will be required to compensate for the skill and advancement that was brought in by the immigrants before the inflow was reduced. Alocation of resource can become better.