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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