Answered: The real business cycle theory believes…

Business

Economics

The real business cycle theory believes the supply of labour is inelastic True False

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 20RQ: Why is there unemployment in a labor market with flexible wages?

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The real business cycle theory believes the supply of labour is inelastic

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False

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While unemployment is highly negatively correlated with the level of economic activity, in the real world it responds with a lag. In other wands, firms do not immediately lay off workers in response to a sales decline. They wait a while before responding. Similarly, firms do not immediately hire workers when sales pick up. What do you think accounts for the lag in response time?
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Why is there unemployment in a labor market with flexible wages?