According to the Federal Reserve, household wealth in the United States fell by more than $11 trillion in 2008

Predict the effect this decrease in wealth had on the equilibrium real wage and level of employment, and use a graph to support your answer.

The decrease in wealth will shift the labor supply curve to the right. When wealth decreases, individuals can purchase fewer goods and services than they currently buy while working the same number of hours. We would expect individuals to increase the quantity of labor supplied at each real wage, which increases the supply of labor, shifting the labor supply curve to the right. Equilibrium would move from point A to point B. This results in a decrease in the equilibrium wage (w1 to w2 ) and an increase in the equilibrium level of employment (L1 to L2 ).