An advocate of the classical model of the economy would claim that unemployment is created when the ____ is above its equilibrium level in the ______?
Correct answer: C. wage rate, labor market
- A. price level, aggregate economy
- B. tax rate, government budget
- C. wage rate, labor market
- D. interest rate, market for loanable funds
Explanation
In the classical labor market, a wage above the equilibrium level creates excess labor supply, so more people want jobs than firms want to hire. This surplus of labor is unemployment.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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