The Labour Market in the Diagram Below Begins in Equilibrium

question 49

Multiple Choice

The labour market in the diagram below begins in equilibrium with a real wage of $10 and quantity employed of 1000. FIGURE 30-1 Refer to Figure 30-1.The economy begins with D₀ and S₀.Suppose there is a negative shock to the economy,which shifts the demand for labour curve to D₁.An outcome consistent with non-market-clearing theories of unemployment is

• A)the wage rate would fall to $8,employment would fall to 800,causing involuntary unemployment of 200 workers.
• B)wages would be sticky and would adjust downward to,perhaps $9,causing involuntary unemployment of 300 workers at that wage.
• C)the wage rate would fall to $8,employment would fall to 800 and there would be no unemployment.
• D)wages would be sticky and would adjust downward to,perhaps $9,causing involuntary unemployment of 200 workers at that wage.
• E)all markets would clear,causing the demand for labour curve to shift back to D₀ and the wage rate and employment levels would return to their original levels.

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