Roger and Brian have a discussion about cost minimization in firms during a recession. Roger stresses that company can reduce its costs by paying workers lower wages during a recession
a. Brian disagrees and argues that a company cannot reduce wages as price levels and wages do not adjust easily in the short run. Who do you think is correct? Give reasons to support your answer.
Roger's statement is based on the classical economic framework, which stresses flexible wages and prices. Brian's statement is based on the Keynesian economic framework. The Keynesian framework is based on the assumption that prices and wages are sticky and do not adjust quickly. The Keynesian economic framework seems to predict more accurately in the short run, although the classical economic framework may be true in the long run.
You might also like to view...
Do food stamps affect the slope of the budget constraint of their recipients or rather shift the budget constraint? Explain
What will be an ideal response?
Which view of the causes of the Great Depression emphasizes that there is little evidence that the economy was suffering from any real shortage of money; the problems, instead, stemmed from a fall of private consumption and investment spending?
(a) The Monetarists' (b) The Keynesians' (c) The Austrians' (d) The International View
Everyone in an economy tends to do better when we experience:
A. high economic growth, low unemployment, and high inflation. B. steady economic growth, low unemployment, and stable prices. C. steady economic growth, high unemployment, and stable prices. D. high economic growth, high unemployment, and low inflation.
An efficient economy
a. is a fair economy b. can only be a capitalist economy c. is not necessarily a fair economy d. would never experience air or water pollution e. would not have a government sector