If labor adjustment costs are higher for a negative real shock,then we can expect to see a:
A) larger increase in the real GDP growth rate.
B) smaller increase in the real GDP growth rate.
C) larger decrease in the real GDP growth rate.
D) smaller decrease in the real GDP growth rate.

Question

Quizplus · Accepted Answer

When labor adjustment costs are higher for a negative real shock, firms find it more expensive to adjust their workforce. This leads to a larger decrease in production and employment, resulting in a larger decrease in the real GDP growth rate.

If Labor Adjustment Costs Are Higher for a Negative Real