If wage rigidity holds the real wage above the equilibrium level,an increase in the demand for labour will ______ the number unemployed.
A) increase
B) decrease
C) not change
D) possibly increase,decrease,or leave unchanged

Question

Quizplus · Accepted Answer

When wage rigidity holds the real wage above the equilibrium level, labor demand decreases due to higher labor costs, leading to an increase in unemployment. However, if the demand for labor increases, the excess supply of labor will decrease, and employers will respond by hiring more workers, even if they have to pay a higher wage. Therefore, the number of unemployed will decrease, and the labor market will move towards equilibrium.

If Wage Rigidity Holds the Real Wage Above the Equilibrium