Which of the following correctly describes a theory of wage behavior during the business cycle?
A) Real Business Cycle theory holds that workers are relatively unresponsive to wage changes
B) Classical theory holds that nominal wages are inflexible
C) Keynesian theory holds that real wages may rise during recessions, preventing labor markets from clearing
D) Rational expectations theory holds that workers continue to anticipate wage increases during recessions
E) Marxist theory holds that unions cause recessions by keeping wages too high

Question

Quizplus · Accepted Answer

Keynesian theory posits that during recessions, nominal wages may not decrease due to wage stickiness, leading to real wages potentially rising if prices fall. This can prevent labor markets from clearing as firms may not hire due to the high cost of labor.

Which of the Following Correctly Describes a Theory of Wage