According to classical theory, full employment in the labor market occurs
A) whenever aggregate demand is less than aggregate supply.
B) at a wage rate at which quantity demanded equals quantity supplied.
C) only when the economy has just experienced a demand shock.
D) only when actual expenditures are greater than desired expenditures.

Question

Quizplus · Accepted Answer

According to classical theory, full employment occurs at a wage rate where quantity demanded of labor equals quantity supplied of labor. This is known as the equilibrium wage rate, and at this point, there is no excess demand or supply of labor. Option A is incorrect because full employment is not simply achieved when aggregate demand is less than aggregate supply but rather through equating quantity demanded with quantity supplied. Option C is incorrect because full employment is not something that happens after a demand shock, but rather is constantly strived for. Option D is incorrect because it refers to a Keynesian concept of full employment, not classical theory.

According to Classical Theory, Full Employment in the Labor Market