Author Question: Youland is hit by a recession. What will be the impact of a countercyclical policy on labor demand ... (Read 65 times)

nevelica · **on:** Jun 30, 2018

Youland is hit by a recession. What will be the impact of a countercyclical policy on labor demand in Youland if nominal wages are downwardly rigid?

What will be an ideal response?

Question 2

The reason we are willing to accept money with no intrinsic value is that

A) the money supply is backed by an equal amount of gold and silver.
B) we have a fiduciary monetary system in which currency has both acceptability and predictability of value.
C) the value of the money varies directly with changes in the price level.
D) paper currency may be exchanged for full-bodied money.

scrocafella · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

If Youland is hit by a recession, its labor demand curve will shift to the left. Since wages are downwardly rigid, there will be a sharp fall in employment due to the recession. However, a countercyclical policy can partially reverse this situation by shifting the labor demand curve back to the right. The countercyclical policy will be more effective in this case than in the case of flexible wages because the full force of the expansionary policy will impact employment.

Answer to Question 2

B