Consider an economy where income distribution is analyzed using a wage-setting (WS) curve and a price-setting (PS) curve, with the results visualized on a Lorenz curve. If new legislation is passed that significantly weakens the bargaining power of labor unions, what is the most likely impact on the Lorenz curve representing the distribution of income among employers, the employed, and the unemployed?

Analyzing Consistency Between Labor Market and Income Distribution Models

Linking Labor Market Equilibrium to Income Inequality

An economy's income distribution is visualized using a Lorenz curve derived from a wage-setting (WS) and price-setting (PS) framework. This framework divides the population into three groups: firm owners (who receive profits), employed workers (who receive wages), and the unemployed (who receive zero income). Match each economic event to its most likely impact on the shape of the Lorenz curve.

If a country's businesses and workers widely expect inflation to remain high, a central bank can reduce the actual inflation rate with a smaller increase in unemployment than if expectations were low and stable.