According to Classical Economists,the Increase in the Unemployment Rate in Recessions

question 105

Multiple Choice

According to classical economists,the increase in the unemployment rate in recessions occurs because

• A)aggregate demand is insufficient.
• B)the time needed to find a job rises in recessions.
• C)labor unions prevent firms from cutting wages.
• D)firms will replace workers by machines.

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Definitions:

Substitution Effect

The alteration in the consumption of goods as a result of changes in their relative prices, leading consumers to substitute more expensive items with cheaper alternatives.

Output Effect

The change in total revenue resulting from selling additional units due to a price decrease, in the context of price elasticity of demand.

Income Effect

A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product’s price.

Wage Rate

The amount of compensation offered to an employee per unit of time (e.g., hourly, daily) or piece of work done.