ployers believe that they are not legally able to reduce wages. en during severe recessions, most workers are able to keep their jobs, and so would rather see a few of their fellow workers laid off an take a pay cut themselves. ployers are fearful of renegotiating contracts because of threats from union officials. major policy implication of this phenomenon? en the economy is experiencing a contraction, it causes the aggregate supply curve to shift to the right, returning the economy to tential output on its own. en the economy is experiencing a contraction, it tends to require an increase in aggregate demand to return to potential output.
ployers believe that they are not legally able to reduce wages. en during severe recessions, most workers are able to keep their jobs, and so would rather see a few of their fellow workers laid off an take a pay cut themselves. ployers are fearful of renegotiating contracts because of threats from union officials. major policy implication of this phenomenon? en the economy is experiencing a contraction, it causes the aggregate supply curve to shift to the right, returning the economy to tential output on its own. en the economy is experiencing a contraction, it tends to require an increase in aggregate demand to return to potential output.
Chapter15: Macroeconomic Viewpoints: New Keynesian, Monetarist, And New Classical
Section: Chapter Questions
Problem 12E
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Transcribed Image Text:Historically, employers have tended to
lay-off workers
during economic downturns.
According to a survey conducted by Yale economist Truman Bewley, which of the following help to explain this phenomenon? Check all that apply.
Employers believe that they are not legally able to reduce wages.
Even during severe recessions, most workers are able to keep their jobs, and so would rather see a few of their fellow workers laid off
than take a pay cut themselves.
Employers are fearful of renegotiating contracts because of threats from union officials.
What is the major policy implication of this phenomenon?
When the economy is experiencing a contraction, it causes the aggregate supply curve to shift to the right, returning the economy to
potential output on its own.
When the economy is experiencing a contraction, it tends to require an increase in aggregate demand to return to potential output.
Long-term contracts limit wage flexibility, and most economists agree that they are therefore inefficient.
O O
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