Suppose a union negotiates for its members a wage that is above the market-clearing wage. What problems does the union have to solve now? Explain
What will be an ideal response?
The higher wage implies there will be an excess of labor so the union must find a way to ration the jobs. The excess supply is due to two factors—the firms' quantity demanded for workers decreases and new workers are attracted into the industry due to the higher wage. Further, the higher labor costs are likely to encourage management to find ways to substitute other factors of production for labor.
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A business cycle peak is a
A) small positive deviation from trend in real GDP. B) relatively large positive deviation from trend in real GDP. C) small negative deviation from trend in real GDP. D) relatively large negative deviation from trend in real GDP.
If there were an increase in the number of bank failures, we should expect the amount of excess reserves in the banking system to:
A. increase. B. decrease since failing banks lost theirs. C. decrease. D. not change.