TRAINING QUESTIONS

1.       According to the Neoclassical approach to labor market, the understanding of a labor market dynamic is predicated on two principles: (1). The downward slope function of the labor demand and (2) the upward slope function of labor supply with respect to real wage. What are these principles and how are they used to understand the market clear-out wage?

1.1.     Define “involuntary unemployment” and what is the neoclassical remedy to it?

1.2.    What are the two main constraints to free movement of real wages.

1.3.    Keynesians’ argument against neoclassical solution to involuntary labor is that “wages are sticky downwards”. What does this expression imply and what is the Keynesian proposition to remedy involuntary unemployment?