RESEARCH PAPER
Illustration of Increased Government Spending On Refugees
The graph above show that, when government increases spending on refugees the money is utilized to buy goods and services produced in the economy. Thus, the demand curve shifts from AD to AD2
Illustration of the Increased Labor Supply in the Economy
The supply of labor is indicated by AS and AS2. The AS curve show the supply of labor before refugee influx while, AS2 shows the supply curve of labor after influx of refugees. This indicates that influx in refugees leads to a shift in labor supply curve.
Impact of Increased Labor Supply in the Economy In The Long Run Assuming Demand is Constant
The above graph shows that, increase in the labor supply resulting from increased refugees will shift the labor supply curve to the right. Thus, a new equilibrium in the labor market will be created. This new equilibrium indicates a low wage and many workers. This low wage is an indication of decreased cost of production (labor). The low cost of labor will encourage investment in the economy and the aggregate supply of goods and services in the economy. This will result from increased production of existing firms and new production from firms entering the economy. In the diagram it is assumed that the wage rate in the economy is determined by market forces of demand and supply (Blanchard, 2006).
References
Blanchard, O. (2006). Macroeconomics. Upper Saddle River, NJ: Pearson Prentice Hall.
