Question

The coordination argument implies that wage cuts in response to a downturn in aggregate demand would be acceptable to workers only_____

a. if labor unions play a strong role in the labor market
b. if the economy is characterized by perfect competition
c. if the economy is large relative to government involvement in it
d. if all firms cut wages simultaneously

Answer 1

The coordination argument implies that wage cuts during an economic downturn would be acceptable to workers only if all firms cut wages simultaneously, to ensure fairness and maintain relative wage positions.

Step-by-step explanation:

The coordination argument suggests that wage cuts in response to a downturn in aggregate demand would be acceptable to workers only if all firms cut wages simultaneously. This concept arises from the idea that workers might hypothetically be willing to take a wage decrease during economic downturns if everyone else is facing the same decline. However, due to fears of being worse off both absolutely and relatively, across-the-board wage cuts are challenging to implement in a decentralized economy, and as a result, workers generally resist such wage reductions.