Question

A) Assume that the graph below is the labor market. Identify curves 1 and 2 and each axis. (5pts)

B) Imagine that there is a large decline in stock prices, reducing aggregate wealth and triggering fears of a potential recession. Referencing the graph above, describe how the labor market will respond to this scenario. In your description, detail which curve is shifting and in what direction it shifts. What happens to the equilibrium real wage rate and quantity of employment? (5pts)

Note: If more than one curve is impacted, a description of how each curve is impacted must be included in your answer.

Answer 1