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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Explain the relationship between the real interest rate and the demand for loanable funds. Compare that relationship to the relationship between expected profit and the demand for loanable funds
What will be an ideal response?
Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basket's cost was $80; in 2008, the basket's cost was $92; and in 2010, the basket's cost was $108 . The base year must be
a. 2002. b. 2008. c. one of the years between 2008 and 2010. d. The base year cannot be determined from the given information.
If two goods are close substitutes:
a. A decrease in the price of one will increase the demand for the other b. An increase in the price of one will increase the demand for the other c. An increase in the price of one will decrease the demand for the other d. A decrease in the price of one will have no effect on the demand for the other
Refer to Table 10.2. If the price of output is $2 per unit and we observe the firm hiring four workers, if the firm is maximizing profit, the wage rate must be between ________ and ________.
A. $25; $45 B. $30; $35 C. $45; $60 D. $60; $80