Author Question: According to the rational expectation hypothesis, disequilibrium may exist in the labor market because (Read 39 times)

Collmarie · **on:** Apr 19, 2019

Question 1

If all firms have rational expectations and wages and prices are flexible, there will be

◦ high unemployment because firms set their wages above the equilibrium wage rate.
◦ a shortage of labor because firms set their wage below the equilibrium wage rate.
◦ no unemployment.
◦ high unemployment because firms know the "true model."

Question 2

According to the rational expectation hypothesis, disequilibrium may exist in the labor market because

◦ of unpredictable shocks.
◦ firms don't know the "true model."
◦ workers don't know the "true model."
◦ of predictable shocks.

raili21 · **Reply #1 on:** Apr 19, 2019

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Collmarie · **Reply #2 on:** Apr 19, 2019

TY

raili21 · **Reply #3 on:** Apr 19, 2019

You're welcome