1.) A negative shock to aggregate demand will lead to a higher unemployment rate

Question

1.) A negative shock to aggregate demand will lead to a higher unemployment rate if:

Select one:

a. time bunching in economic activity is lower.

b. intertemporal substitution in labor supply is lower.

c. investments are more easily reversible.

d. labor adjustment costs are higher.

2.) If a real shock causes a particular sector of the economy to decline, associated labor adjustment costs will _____ the effect of the initial shock.

Select one:

a. amplify

b. dampen

c. not influence

d. eliminate

3.) The fact that employment tends to be relatively high during the Christmas season and low during January is an example of:

Select one:

a. intertemporal substitution.

b. labor adjustment costs.

c. time bunching.

d. irreversible investments.

4.) During an economic boom, the employment-to-population ratio rises because:

Select one:

a. inflation tends to rise at that time.

b. the opportunity cost of leisure increases.

c. fewer people are available to work.

d. real wages tend to fall at that time.

5.) If it takes people more time to make employment decisions, then a given negative economic shock will cause a decline in economic growth:

Select one:

a. smaller in size and shorter in duration.

b. larger in size but shorter in duration.

c. smaller in size but longer in duration.

d. larger in size and longer in duration.

Explanation / Answer

Ans

1 investments are more easily reversible because it would led to greater fall in investment and thus employmrnt

2 dampen E. G it is difficult to fire labour. Firms may prefer less profits in shortrun than firing labour

3 time bunching

4 real wages fall as prices rise

5 larger in size and longer in duration. E. G due to more time wages are inflexible downwards

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