The labour market in the diagram below begins in equilibrium with a real wage of $10 and quantity employed of 1000.
FIGURE 30-1 Refer to Figure 30-1.The economy begins with D0 and S0.Suppose there is a negative shock to the economy,which shifts the demand for labour curve to D1.In the market-clearing theory of unemployment,
A) wages would be sticky and would adjust downward to,perhaps $9,causing involuntary unemployment of 200 workers.
B) the wage rate would fall to $8,employment would fall to 800,causing involuntary unemployment of 200 workers.
C) wages would be sticky and would adjust downward to,perhaps $9,causing involuntary unemployment of 300 workers.
D) the wage rate would fall to $8,employment would fall to 800 and there would be no involuntary unemployment.
E) all markets would clear,causing the demand for labour curve to shift back to D0 and the wage rate and employment levels would return to their original levels.
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