jnu macro

[neha 1]

In Keynesian theory of aggregate output and employment determination in the short run an increase in the equilibrium level of employment in the economy is always accompanied by
A. A rise in the equilibrium real wage rate
B a fall in the equilibrium real wage rate
C. A rise in the equilibrium total wage bill
D a fall in the equilibrium total wage bill

[ABHI1994]

I think option a will be correct.

On 14 May 2015 at 23:24, neha 1 [via Discussion forum] <[hidden email]> wrote:

In Keynesian theory of aggregate output and employment determination in the short run an increase in the equilibrium level of employment in the economy is always accompanied by
A. A rise in the equilibrium real wage rate
B a fall in the equilibrium real wage rate
C. A rise in the equilibrium total wage bill
D a fall in the equilibrium total wage bill

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NAML

[L]

If option A is correct, then why not option C? As we assume prices to be sticky in short run for keynesian analysis,  if real wage shots up and employment increases, so will the total wage bill. In fact, C makes more sense if you take into account rigidity of the wage contracts. Wage contracts won't change so fast and employment is increasing, then, total wage bill will increase.  

[unsullised]

C.

[dhruv]

Keynes considered wages to be rigid. Therefore, if equilibrium level of employment increases then this would necessarily lead to an increase in the total wage bill.

Answer - C