If All Firms Are Paying Efficiency Wages and Nominal Aggregate

question 31

Multiple Choice

If all firms are paying efficiency wages and nominal aggregate demand falls,then between maintaining nominal wages and reducing them firms generally find it more profitable to ________ them,thus ________ the unemployment rate.

• A)maintain,increasing
• B)maintain,maintaining
• C)reduce,increasing
• D)reduce,maintaining

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Definitions:

Labor Demand

The total quantity of labor that employers want to hire at a given wage rate.

Labor Supply

Refers to the total hours that workers are willing and able to work at a given wage rate in a specific period.

Profit-maximize

A strategy where a firm makes decisions intended to achieve the highest possible profit.

Profit-maximizing

The point at which a firm achieves the highest possible profit, where the marginal cost of production equals the marginal revenue from sales.