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When Employment Falls Below Its Natural Rate

Question 59

Multiple Choice

When employment falls below its natural rate,


A) firms have no incentive to hire additional workers since the real wage equals the marginal product of labor.
B) workers have no incentive to work more since their opportunity cost of leisure equals the real wage.
C) neither firms nor workers have an incentive to increase the level of employment.
D) previous government intervention in labor markets has removed most of the incentive for adjustment to occur on its own.
E) both firms and workers have strong incentives to increase employment but economists still struggle to more fully understand why they operate so slowly.

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