A company facing the problem of moral hazard decided to lay off some workers during a recession, instead of lowering wages. What is the possible reason behind such a decision?
What will be an ideal response?
Employers pay higher wages to their employees to ensure high productivity and good morale. If the company lowered the wages of its workers, workers may have started shirking because there exists moral hazard in the labor market. This would have resulted in lower productivity and lower income for the company.
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"An increase in the real interest rate increases the quantity of investment." Is the previous statement correct or incorrect?
What will be an ideal response?
When the price level falls from 135 to 120, the aggregate level of GDP supplied falls from $140 billion to $125 billion. This ________ relationship represents the ________ relationship between GDP and the price level
A) positive; long-run B) negative; short-run C) negative; long-run D) positive; short-run