Answer to Question #176574 in Macroeconomics for Ismail Mussa

Question

A group of people find themselves stranded on a desert island, where there is fresh water, food, and nice weather. They all undertake various activities including producing and foraging for food, and offering services such as entertainment and haircuts. They have with them a large box of pumpkin seeds which they decide to use as their currency. The seeds can also be eaten, or planted and more seeds harvested and again used for money, eating, or planting further.

a. Provide a plausible explanation as to why an increase in the minimum wage might not have any impact on unemployment

Answer 1

An increase in pay would not only put more money in workers' pockets but also give a boost to consumer spending and benefit many of those very employers. Plus, employers would be able to retain employees longer and save on the cost of hiring and training new ones.