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Homework answers / question archive / AD-SRAS-LRAS model of the economy
AD-SRAS-LRAS model of the economy. Assume the SRAS curve is upward sloping. a. (4 pts) Congress has debated raising the minimum wage to over $10 per hour. Doing so would permanently increase the production costs to businesses, especially those relying on lower-skilled workers. Use the AD-AS model to discuss the macro impacts on the price level, real GDP and unemployment.
b. (4 pts) The Federal Reserve has decided to design a policy response to the shift in part (a). What policy options are available and what are the associated trade-offs? Use an AD- AS diagram to support your opinion.
