With respect to unemployment, the classical model states that
A) unemployment of any kind cannot exist.
B) only voluntary unemployment exists.
C) unemployment fluctuates with the interest rate.
D) involuntary unemployment will always exceed voluntary unemployment.

Question

Quizplus · Accepted Answer

The classical model assumes that all individuals have rational expectations and will adjust their employment decisions according to changes in wages and prices in the labor market. Therefore, the only type of unemployment that exists in the classical model is voluntary unemployment, which occurs when individuals choose not to work at the current wage rate. Involuntary unemployment, or unemployment caused by a lack of job opportunities, does not exist in the classical model.

With Respect to Unemployment, the Classical Model States That