New Keynesian theories of efficiency wages imply

Question

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New Keynesian theories of efficiency wages suggest that firms pay higher wages than the market equilibrium to motivate workers and reduce turnover, resulting in real wage rigidity. This can lead to involuntary unemployment, as firms are unable to adjust wages downward during economic downturns. However, changes in unemployment may not necessarily reflect changes in the natural rate of unemployment due to this wage rigidity. Although market clearing may eventually occur in the long-run, in the short-run, there may be involuntary unemployment. Therefore, options A, C, and D are not correct.

New Keynesian Theories of Efficiency Wages Imply