The Difference Between the Keynesian and Classical Labor Supply Functions

question 14

Multiple Choice

The difference between the Keynesian and classical labor supply functions is that in the Keynesian version

• A)workers know the real wage while in the classical system workers must form an expectation of the price level.
• B)workers must form an expectation of the price level while the workers know the real wage in the classical system.
• C)workers are assumed to be interested in the money wage while in the classical version workers know the real wage.
• D)labor supply depends on the actual real wage while labor supply depends on the expected real wage in the classical system.

---

Definitions:

Equilibrium

A state in which market supply and demand balance each other, and as a result, prices become stable.

Preferred Stockholders

Investors who own shares that typically do not have voting rights but have a higher claim on assets and earnings than common stockholders, such as receiving dividends before them.

Liquidation Proceeds

The funds that are received as a result of liquidating, or selling off, a company's assets, typically occurring during bankruptcy or when a company closes.

Tax Deductible

Expenses that can be subtracted from gross income to reduce the amount of income subject to tax.