If the real wage rate is such that the quantity of labor supplied is greater than the quantity of labor demanded,

Question

Quizplus · Accepted Answer

If the quantity of labor supplied exceeds the quantity of labor demanded, it suggests that there is a surplus of labor in the market, and wages will fall to try and clear that surplus. In doing so, firms will reduce employment, which leads to a decrease in output, suggesting that real GDP will not equal potential GDP.

If the Real Wage Rate Is Such That the Quantity