In the New Classical Model, When Output Is Above Trend

question 14

True/False

In the New Classical model, when output is above trend, unemployment is countercyclical and employment will be above trend and so be procyclical. Inflation will be procyclical but real wages will be countercyclical because as output rises real wages fall.

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Definitions:

Degree of Operating Leverage

A measure of how sensitive a company's operating income is to a change in sales, indicating the proportion of fixed costs in the business's cost structure.