When expectations are rational, disequilibrium in the labor market would exist only temporarily as a result of unpredictable shocks in the economy.

Question

Quizplus · Accepted Answer

When expectations are rational, individuals have accurate expectations about future economic conditions such as inflation and wages. This means that the labor market will adjust quickly to any temporary disequilibrium caused by unexpected shocks in the economy. Therefore, disequilibrium would only exist temporarily.

When Expectations Are Rational, Disequilibrium in the Labor Market Would