Several people in Neonland are expecting a sharp rise in the unemployment rate in the near future.Which of the following is likely to happen in this case?
A) The labor demand curves of firms in Neonland will shift rightward.
B) Current consumption by households in Neonland will increase.
C) Investment by firms in Neonland will increase.
D) Neonland's GDP will fall.

Question

Quizplus · Accepted Answer

If the unemployment rate in Neonland rises, it means that fewer people will have jobs and be able to contribute to the economy. This will likely lead to a decrease in overall economic activity and therefore a fall in GDP. Option A is not likely as firms would not increase labor demand if the unemployment rate is already high. Option B is not likely as increased consumption generally requires income, which would be limited due to the rise in unemployment. Option C is not likely as firms would be hesitant to invest in new projects when the economic environment is uncertain.

Several People in Neonland Are Expecting a Sharp Rise in the Unemployment