A Negative Shock to Aggregate Demand Will Lead to a Higher

question 32

Multiple Choice

A negative shock to aggregate demand will lead to a higher unemployment rate if:

• A) time bunching in economic activity is lower.
• B) intertemporal substitution in labor supply is lower.
• C) investments are more easily reversible.
• D) labor adjustment costs are higher.

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Definitions:

Fixed Costs

Fixed costs are expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.

Total Dollar Amount

The complete sum of all monetary figures in question, without considering the breakdown of components that constitute this total.

Activity Changes

Refers to alterations in the volume or pace of operations or transactions within a business over a period.

Variable Costs

Costs that vary directly with the level of production or volume of output, such as raw materials and labor directly involved in manufacturing.