The key implication for macroeconomic instability is that insider-outside relationships in the labor market:
A) Contribute to the downward inflexibility of wages
B) Help reduce the downward inflexibility of wages
C) Increase the velocity of money
D) Reduce the velocity of money

Question

Quizplus · Accepted Answer

Insider-outside relationships in the labor market can create a dual labor market with insiders (those already employed) having more bargaining power and outsiders (the unemployed) having less bargaining power. This can lead to downward wage inflexibility because insiders may resist wage cuts in order to maintain their bargaining power and job security, leading to higher unemployment among outsiders. This can contribute to macroeconomic instability as it can lead to lower aggregate demand and economic growth.

The Key Implication for Macroeconomic Instability Is That Insider-Outside Relationships