Jolyn

akshayj, this is a movement along the DEMAND curve of LABOR and NOT along firm's SUPPLY curve. With lower demand for labor (along the demand curve of labor), firm's supply curve will SHIFT.

Also, in addition to labor, second factor of production is CAPITAL. When there is shortage of Money Supply, Interest Rates will rise and cost of CAPITAL will also rise. This will also affect Firm's supply curve causing the firm's supply curve to shift to left.

Also know that aggregate supply curve is a function of prices of PRODUCED item and output quantity only. When prices of produced item go down, its supply goes down. That will be a movement along supply curve. But here prices of FACTORS OF PRODUCTION are changing. Whenever, cost of factors of production (labor and/or capital) changes, affect will be SHIFT in aggregate supply curve (and not movement along aggregate supply).

Hope it helps.