For the coordination failure model to work, it must be the case that the aggregate labour demand curve must be
A) upward sloping and steeper than the labour supply curve.
B) upward sloping and flatter than the labour supply curve.
C) downward sloping and steeper than the labour supply curve.
D) downward sloping and flatter than the labour supply curve.
E) downward sloping and the labour supply curve upward sloping.

Question

Quizplus · Accepted Answer

The coordination failure model assumes that the aggregate labour demand curve is upward sloping and steeper than the labour supply curve. This means that as the wage rate increases, the quantity of labour demanded increases more than the quantity of labour supplied. This creates a gap between the quantity of labour demanded and the quantity of labour supplied, which leads to unemployment.

For the Coordination Failure Model to Work, It Must Be