According to Gordon,a major problem with Keynes' "rigid nominal wage" theory of the business cycle is
A)a horizontal LM curve.
B)it is not a market clearing theory.
C)falling real wages are not countercyclical with business activity or Y.
D)None of the above.

Question

Quizplus · Accepted Answer

Gordon argues that falling real wages are not countercyclical with business activity or Y, which contradicts Keynes' theory that nominal wage rigidity leads to employment and output fluctuations. Therefore, choice C is the correct answer, as it highlights the main problem with Keynes' theory according to Gordon. Choices A and B are not directly related to the critique of Keynes' nominal wage rigidity theory.

According to Gordon,a Major Problem with Keynes' "Rigid Nominal Wage