Real-wage rigidity in the Keynesian efficiency wage diagram of the labor market is depicted by
A)a vertical labor supply curve at the efficient level of employment,
B)a vertical labor demand curve at the efficient level of employment.
C)a horizontal line at the efficiency wage.
D)a steep, positively sloped labor supply curve depicting various efficiency wages at various employment levels.

Question

Quizplus · Accepted Answer

Real-wage rigidity in the Keynesian efficiency wage diagram is depicted by a horizontal line at the efficiency wage level. This means that workers are not willing to accept lower wages even if the market wage falls below the efficiency wage, leading to an excess supply of labor. As a result, the labor demand curve becomes rigid or flat, and there could be involuntary unemployment in the economy.

Real-Wage Rigidity in the Keynesian Efficiency Wage Diagram of the Labor