A beneficial oil-price shock increases labor demand.What happens to current employment and the real wage rate?

Question

Quizplus · Accepted Answer

A beneficial oil-price shock means that the price of oil has decreased, resulting in lower production costs for firms. This leads to increased labor demand, as firms can afford to hire more workers. As a result, current employment would increase. Additionally, with higher labor demand, firms may need to increase wages to attract and retain workers, leading to an increase in the real wage rate. Therefore, both employment and the real wage rate would increase.

A Beneficial Oil-Price Shock Increases Labor Demand