Labor Demand and fluctuations - Sources of Fluctuations - Multipliers and Economic Fluctuations

12 important questions on Labor Demand and fluctuations - Sources of Fluctuations - Multipliers and Economic Fluctuations

What are the 3 sources of fluctuations?

1) Technology shocks
2) Sentiments and Multipliers
3) Monetary and Financial Factors

3 Sources of Fluctuations: Technology shocks

Countries that consistently improve technology will have high growth rates.

3 Sources of fluctuations: Sentiments + example

Changes in expectations about future economic activity.
Example: animal spirits
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3 Sources of fluctuations: Multipliers

Economic mechanisms that amplify the initial impact of a shock.

What are Animal Spirits?

Psychological factors that lead to changes in the mood (of consumers and businesses) and affect consumption, investment and GDP.

What is the Self-fulfilling prophecy?

A situation in which the expectations of an event cause actions that lead to that event.

Example: thinking that you will fail an exam instead of studying increases the chances of failing because it keeps you from studying.

What is the school of thought; Real Business Cycle Theory?

It emphasises the role of technology in causing economic fluctuations.

What is the aggregated demand?

The overall demand in the economy for goods and services that firms produce.

What does the aggregated demand determine?

It determines the LDC and drives hiring decisions of firms

What is the 3th source of fluctuations, namely Monetary and Financial Factors about?

It is about money supply and how it affects nominal GDP and the DWR.

How does the money supply affect nominal GDP?

If money supply decreases, prices fall. This reduces employment because they need less employees which reduces the labor demand because of DWR.

When do we have unemployment (Graph)

Market wage > market clearing wage = unemployment


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