Would a wage increase affect aggregate demand or supply?
If labor receives a large wage increase, would this mean it affects the aggregate supply or the aggregate demand of the nation? Or both?
Because an increase in wages could mean an increase in disposable income, leading to more consumption, which then again makes the aggregate demand curve shift to the right. Or am I wrong?
An increase in wages could also mean that the costs of production goes up, causing the aggregate supply curve to shift to the left.
So, my question is: does a large increase in labor wages affect AD or AS? Or both? I’m confused since this increase could be a determinant of both.
This question is in the General Section. Responses must be helpful and on-topic.