As you learned in this chapter, the immediate source of short run fluctuations i

Question

As you learned in this chapter, the immediate source of short run fluctuations in employment and unemployment is a leftward shift in labor demand. This Chapter's Evidence Based Economics presents data on the three key factors behind those shifts that caused the recession of 2007–2009.

When labor demand shifts left at the start of the recession, the ultimate impact on employment and GDP will be:

A. Negative, and larger if wages are fairly rigid.

B. Positive, and smaller if wages are very flexible.

C. Positive, and larger if wages are very flexible.

D. Negative, and smaller if wages are fairly rigid.

The bursting of the housing bubble after 2006 was the major initial contributor to the 2007–09 recession because:

It was accompanied by (an increase/a decrease) in the inventory of unsold homes.

The price homebuilders could get for a new home (fell/increased).

Homebuilders responded by (increasing/reducing) the number of new homes they wanted to build.

Homebuilders responded by (increasing/reducing) the number of workers they hired to build new homes.

The effect on overall employment was (increased/reduced) through its impact on related industries such as commercial real estate and consumer demand for products such as home appliances.

The bursting of the housing bubble also had an additional effect on consumption spending for which of the following reasons?

(Check all that apply)

A. Lower home prices made people feel wealthier and increased consumption.

B. Consumers could not continue to get home mortgages and spend at previous levels.

C. Lower home prices made people feel poorer and decreased consumption spending.

Explanation / Answer

Part A

Negative, and larger if wages are rigid

Part B

1.It was accompanied by decreased the inventory of unsold house

2. The price of home builders could get for a new home fell

3. Home builders responded by decreasing the number of workers they hired to build new homes

4. The effcet overall employment reduced through its impact on related industries

Part C

When the lower home prices made people feel wealtheir and increased consumption. When decrease in the price of new homes decline then people are buy more houses. But lower consumption level will lead to crisis.

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