Suppose That the Labor Market Is Currently in Equilibrium at a Wage

question 278

Multiple Choice

Suppose that the labor market is currently in equilibrium at a wage rate of $2.60. Suppose that the subsistence wage rate is $2.20. According to the classical theory of growth, which of the following describes subsequent events in the economy?

• A) Population will grow because the current real wage rate is above the subsistence wage rate.
• B) The economy is in equilibrium with labor supply equal to labor demand, so the economy stays at this real wage rate.
• C) Population will decline because labor supply exceeds the subsistence level of labor supply.
• D) Real wages will continue to grow above the subsistence level.

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