Refer to the following figure when answering the following questions.
Figure 15.3: The Labor Market
-In the stylized DSGE model for the labor market displayed in Figure 15.3, with sticky prices, a monetary contraction would move the labor market from ________ because ________.
A) of , and therefore real GDP falls
B) nominal wages and inflationary expectations rise
C) real wages fall, so workers supply less labor
D) future consumption falls, increasing labor supply
E) the labor market clears, but output markets do not

Question

Refer to the following figure when answering the following questions.
Figure 15.3: The Labor Market 
-In the stylized DSGE model for the labor market displayed in Figure 15.3, with sticky prices, a monetary contraction would move the labor market from ________ because ________.
A) of , and therefore real GDP falls 
B) nominal wages and inflationary expectations rise 
C) real wages fall, so workers supply less labor 
D) future consumption falls, increasing labor supply 
E) the labor market clears, but output markets do not

Quizplus · Accepted Answer

A monetary contraction would shift the aggregate demand curve to the left, reducing both the equilibrium price level and real GDP. In the labor market, this would lead to a decrease in labor demand, causing unemployment to increase and wages to fall. This would result in a movement from point A to point B in the labor market, with a lower real wage and a lower level of employment.

Refer to the Following Figure When Answering the Following Questions