Chapter 9 Notes

Chapter 9 Notes - any given wage Because sudden shifts of...

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Chapter 9 Notes: Economic Fluctuations - During recessions, output declines and employment declines; during expansions, output rises quickly and employment grows rapidly Boom: a period of time during which real GDP is above potential GDP - A recession might be caused by a leftward shift of the labor demand curve; this means that firms want to hire fewer workers at any given wage than they wanted to hire before (although highly unlikely) - A leftward shift in the labor demand curve can also be caused by workers becoming less productive and therefore less valuable to firms. - Changes in spending are caused by changes in employment and output, but not the other way around Because shifts in the labor demand curve are not very large from year to year, the classical model cannot explain real-world economic fluctuations through shifts in labor demand - A leftward shift in labor supply would mean that fewer people want to work at
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Unformatted text preview: any given wage Because sudden shifts of the labor supply curve are unlikely to occur, and because they could not accurately describe the facts of the economic cycle, the classical model cannot explain fluctuations through shifts in the supply of labor We cannot explain the facts of short-run economic fluctuations with a model in which the labor market always clears. This is why the classical model, which assumes that the market always clears, does a poor job of explaining the economy in the short run.-During recessions, qualified people want to work at the going wage rate, but firms won’t hire them because firms aren’t selling enough output-In a boom, the unemployment rate is so low the normal job-search activity is short-circuited; firms are less careful about who they hire because they are so short-staffed...
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This note was uploaded on 03/25/2008 for the course ECON 2006 taught by Professor Rdcothren during the Spring '08 term at Virginia Tech.

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