If labour markets had perfectly flexible wages, as the New Classical theories suggest, involuntary unemployment would

Question

Quizplus · Accepted Answer

According to New Classical theories, if wages were perfectly flexible, then any excess supply or demand for labour would be immediately corrected by changes in the wage rate. This means that there would be no involuntary unemployment because workers would always be able to find work at the market-clearing wage rate. Therefore, option E is the correct answer as involuntary unemployment would not exist in the economy with perfectly flexible wages.

If Labour Markets Had Perfectly Flexible Wages, as the New