If All Firms Have Rational Expectations and Wages and Prices

question 292

Multiple Choice

If all firms have rational expectations and wages and prices are flexible, there will be

• A) high unemployment because firms set their wages above the equilibrium wage rate.
• B) a shortage of labor because firms set their wage below the equilibrium wage rate.
• C) no unemployment.
• D) high unemployment because firms know the "true model."

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Definitions:

Human Agency

The capacity of individuals to act independently and make their own free choices.

Personal Agency

The ability of people to operate autonomously and make choices freely.

Proxy Agency

The theory or capacity of individuals or groups to act on behalf of others or represent others in certain capacities or decision-making processes.

Collective Agency

The capacity of a group of individuals to act together towards a common goal, often seen in social movements or collaborative projects.