After a negative demand shock, the "Yes - Markets Self-Adjust" camp argues that all of the following will happen except,
A) export spending increases due to a lower Canadian price level.
B) interest rates fall, increasing business investment spending.
C) wages rise due to excess demand for labour.
D) import spending decreases due to a lower Canadian price level.
E) wages fall due to excess supply of labour.

Question

Quizplus · Accepted Answer

According to the "Yes - Markets Self-Adjust" camp, wages would not rise due to excess demand for labour after a negative demand shock. In fact, wages may fall due to excess supply of labour as companies may have to lay off workers or reduce wages to stay afloat during a recession.

After a Negative Demand Shock, the "Yes - Markets Self-Adjust