Question

According to Keynesian business cycle​ theory, A. inflation is procyclical and leading. B. the procyclical movement of investment is well explained when shocks to durable goods are themselves a main source of the cycle​ (so-called "animal​ spirits"), but not when cycles are caused by fluctuations in the LM curve. C. beneficial aggregate demand​ shocks, regardless of whether they shift the IS curve or the LM​ curve, will increase both output and the real interest rate. D. the procyclical behavior of labor productivity occurs due to​ firms' labor hoarding practices.

Answer 1

Answer: D. the procyclical behavior of labor productivity occurs due to​ firms' labor hoarding practices.

Explanation:

Keynesian Economists argue that firms practice labor hoarding which is the practice of keeping workers when they should not such as when there is a Recession. They should not keep these workers because demand has slowed so keeping them means that they will not be producing to meet the demand.

The procyclical behavior of labor productivity means that labor productivity goes by the Business Cycle in that it is high when the Economy is booming and low when it is in a Recession.

Productivity is calculated by dividing goods produced by the number of labor producing them.

By refusing to fire workers during a Recession, there will be too many workers producing too few goods which will decrease labor productivity which is why according to Keynesian Economists, the productivity is low in Recessions.