Which of the following is an important assumption about the labor market that is shared by both the original Keynesian model and the Friedman "Fooling Model?"
A) the supply of labor depends on expected real wages
B) the demand for labor is a function of nominal wages
C) workers can be "off" their labor supply function in the short-run equilibrium
D) firms can be "off" their labor demand function in the short-run equilibrium

Question

Quizplus · Accepted Answer

Both the original Keynesian model and the Friedman "Fooling Model" assume that in the short run, workers can be "off" their labor supply function, meaning they may not be working as much as they would in the long run due to factors such as sticky wages or uncertainty about future wages. This assumption allows for the possibility of short-run unemployment, which both models seek to address through different policy prescriptions. The other options are not assumptions shared by both models.

Which of the Following Is an Important Assumption About the Labor