Author Question: Because of labor hoarding, a reduction in output may signal A) an increase in employment. B) a ... (Read 85 times)

jc611 · **on:** Jun 30, 2018

Because of labor hoarding, a reduction in output may signal

A) an increase in employment.
B) a reduction in employment.
C) no change in employment.
D) a reduction in productivity.

Question 2

Suppose that, at a given level of disposable income, consumers decide to save more. Explain what effect this decision will have on equilibrium income. Also, explain what effect this decision will have on the level of saving once the economy has reached the new equilibrium.

What will be an ideal response?

iman · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

C

Answer to Question 2

This is the paradox of saving. Here, consumption will fall causing a reduction in demand and a reduction in output. Despite the initial increase in saving at the initial level of income, saving will return to the initial level as income falls in order to maintain the alternative equilibrium condition: S = I. So, the initial increase in the desire to save will have no permanent effect on the level of saving.