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 unemployment.
E) all markets would clear,causing the demand for labour curve to shift back to D 0 and the wage rate and employment levels would return to their original levels.
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