How is a firm's labor demand affected during a recession if wages are downwardly rigid?
What will be an ideal response?
The labor demand curve shifts to the left during a recession. With flexible wages, this leads to a fall in equilibrium wage and employment. However, if wages are downwardly rigid, firms are unable or unwilling to cut wages because of contractual restrictions or because of morale problems that would result from falling wages. As a result, they end up laying off more workers than they would have otherwise. With downwardly rigid wages, a leftward shift in the labor demand curve causes employment to fall by even more than it would if wages are flexible.
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In long-run equilibrium in a monopolistically competitive market, firms typically: a. earn a normal profit
b. charge a price equal to marginal cost. c. earn an above-normal profit. d. charge a price equal to marginal revenue.
Assume that the central bank lowers the discount to increase the nation's monetary base. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and reserve-related (central bank) transactions in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete
equilibrium. a. The real risk-free interest rate remains the same and reserve-related (central bank) transactions become more positive (or less negative). b. The real risk-free interest rate falls and reserve-related (central bank) transactions become more negative (or less positive). c. The real risk-free interest rate falls and reserve-related (central bank) transactions remain the same. d. The real risk-free interest rate and reserve-related (central bank) transactions remain the same. e. There is not enough information to determine what happens to these two macroeconomic variables.