Labor adjustment costs help amplify the initial negative shock by:
A) keeping the unemployment rate high.
B) discouraging irreversible investments.
C) sending inflation higher.
D) blocking employment search efforts.

Question

Quizplus · Accepted Answer

Labor adjustment costs can keep the unemployment rate high by making it more difficult and costly for firms to adjust their workforce in response to economic shocks, thus amplifying the initial negative impact.

Labor Adjustment Costs Help Amplify the Initial Negative Shock By