Draw the graph · Macro · Aggregate demand and aggregate supply
Immigration raises the workforce
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
Show the model answer
Aggregate demand stays put. Short-run aggregate supply shifts right. Long-run aggregate supply shifts right.
Potential output depends on the economy's resources, including labor. A permanently larger workforce raises the economy's capacity, so LRAS shifts right. Firms can also produce more today at any price level with more workers, so SRAS shifts right too. AD is unchanged.
Real GDP rises and the price level falls, with potential output higher.
Common mistake. A common error is to shift AD right because 'more people means more spending.' The stem is about the workforce, a productive resource. The lasting effect is on supply, and LRAS must move.
More aggregate demand and aggregate supply prompts
Go deeper
Lesson: Aggregate Supply