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.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter21: Unemployment

Section: Chapter Questions

Problem 5SCQ: Beginning in the 1970s and continuing for three decades, women entered the U.S. labor force in a big...

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