If there is an adverse supply shock,
A)the labour demand curve would shift leftward and,for any real wage,firms would demand more labour.
B)the labour demand curve would shift leftward and,for any real wage,firms would demand less labour.
C)the labour demand curve would shift rightward and,for any real wage,firms would demand more labour.
D)the labour demand curve would shift rightward and,for any real wage,firms would demand less labour.

Question

Quizplus · Accepted Answer

An adverse supply shock is an event that increases the cost of production, such as an increase in the price of raw materials or a decrease in the availability of resources. This leads to a leftward shift in the aggregate supply curve, which results in higher prices and lower output. As a result, firms will demand less labor at any given real wage due to the decrease in output. Therefore, the labor demand curve would shift leftward, and for any real wage, firms would demand less labor, as stated in choice (B).

If There Is an Adverse Supply Shock