4. In the (neo) classical theory, the intersection between the demand curve for labor and the supply curve of labor determines the "equilibrium real wage" ( Remember that the real Nominal Wage wage is the ratio between the nominal wage and the price level Consumer Price Index Therefore, the excess supply of labor (unemployment) is explained by wage rigidities that prevent the self-correction mechanism in the labor market. According to the neoclassical theory, should real wages increase or decrease in order to reduce the unemployment rate? Explain.

4. In the (neo) classical theory, the intersection between the demand curve for labor and the supply curve of labor determines the "equilibrium real wage" ( Remember that the real Nominal Wage wage is the ratio between the nominal wage and the price level Consumer Price Index Therefore, the excess supply of labor (unemployment) is explained by wage rigidities that prevent the self-correction mechanism in the labor market. According to the neoclassical theory, should real wages increase or decrease in order to reduce the unemployment rate? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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