One theory of unemployment argues that the unemployment rate will rise when
A) people have accurate expectations regarding the inflation rate.
B) unexpected inflation causes people to be "fooled" by high absolute wages.
C) people mistakenly believe their wages have greater purchasing power.
D) people overestimate the rate of inflation.

Question

Quizplus · Accepted Answer

According to the theory of unemployment known as the misperceptions theory, people may overestimate the rate of inflation and thus demand higher wages. This can lead to higher unemployment as employers are less willing to hire workers at those wages.

One Theory of Unemployment Argues That the Unemployment Rate Will