In the neoclassical view of the macroeconomy, too many workers seeking work or unemployment will lead to
A) falling wages.
B) rising wages.
C) rising interest rates.
D) government programs to help the unemployed.

Question

Quizplus · Accepted Answer

In the neoclassical view, the labor market operates like any other market, with wages and prices adjusting to equate supply and demand. If there are too many workers seeking jobs (i.e. unemployment is high), this means that the supply of labor exceeds the demand for labor, which will put downward pressure on wages. As wages fall, firms will find it more attractive to hire workers and the labor market will eventually clear (i.e. the unemployment rate will return to the natural rate). Therefore, the correct answer is (A) falling wages.

In the Neoclassical View of the Macroeconomy, Too Many Workers