The actual real wage must be below the equilibrium real wage in order to encourage firms to produce at any output level above the natural rate.Once workers realize this situation,their expected price level will gradually rise and they will demand a higher nominal wage.This description of a business cycle adjustment is part of which of the following theories?
A)Classical model
B)original Keynesian model
C)Friedman fooling model
D)the RBC model

Question

Quizplus · Accepted Answer

This description aligns with the Friedman fooling model, which suggests that temporary deviations from the natural rate of unemployment can occur due to unexpected changes in the price level, leading workers to adjust their wage demands as they revise their expectations about inflation.

The Actual Real Wage Must Be Below the Equilibrium Real