Economic theory suggests that, during a recession, when unemployment is above the natural rate,

Question

Quizplus · Accepted Answer

During a recession, when unemployment is high, both employers and job seekers have incentives to adjust their expectations and behaviors to mitigate the effects of the recession. Employers can negotiate lower wages to keep operations running, and job seekers may lower their wage demands to secure employment. Firms might also see it as an opportunity to hire when there is a larger pool of job seekers. All these actions contribute to reducing excess unemployment, making all the statements correct.

Economic Theory Suggests That, During a Recession, When Unemployment Is