Question

Before tuberculosis was understood to be a communicable disease, and before the discovery of antibiotics to treat it, a major outbreak could kill or cripple a significant portion of a nation's labor force. how would such an event affect the economy? illustrate the effect by dragging to shift either the aggregate demand curve or the long-run aggregate supply curve.

Answer 1

Reduction in a nation's labor force would long-run aggregate supply curse to the left, representing a reduction in labor. This would tend to drive up labor costs over time. Presumably, the demand curve would remain static in the short-term. However, such a reduction would also impact the nation's consumption and thereby reduce the demand for products. This would in turn drive a decreased demand for labor (leftward shift) and apply downward pressure to wages. The answer to this depends on whether the questions is regarding short-term, medium-term or long-term labor supply/demand curve.