The economy of Budopia is going through a recession. How will a countercyclical policy affect the labor market in Budopia if wages are flexible? Explain with a diagram
What will be an ideal response?
Starting from a pre-recession equilibrium labeled as point E1 in the diagram below, the labor demand curve of Budopia will shift to the left during a recession, reducing employment and GDP. This will take the economy to the point marked E2, where employment and wages are lower. If wages are flexible, a successful countercyclical policy will shield the economy from the full impact of the recession by shifting the labor demand curve back to the right, taking the economy to the point labeled E3. Therefore, a successful countercyclical policy will lead to a partial increase in equilibrium employment and wage.
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A) up; up B) up; down C) down; up D) down; down
Efficiency occurs if the:
A. individually rational quantity of goods and services is being produced. B. market is in equilibrium. C. government does not interfere with market prices. D. socially optimal quantity of goods and services is being produced.
Which of the following would a macroeconomist most likely want to decrease?
a. economic growth b. the labor force participation rate c. the price level d. unemployment
The law of demand describes the:
A. inverse relationship between price and quantity demanded. B. direct relationship between income and quantity demanded. C. inverse relationship between income and quantity demanded. D. direct relationship between price and quantity demanded.