Question

A difference between the classical and Keynesian labor supply functions is that in the Keynesian 11) version

A) workers know the real wage while in the classical system workers must form an expectation
B) workers must form an expecation of the price level while in the classical system workers
C) workers are interested in the real wage whereas in the classical model workers care only
D) labor demand usually exceeds labor supply whereas the opposite is true in the dassical model.

Answer 1

A difference between the classical and Keynesian labor supply functions is that in the Keynesian version B) workers must form an expectation of the price level while in the classical system workers do not.

In the classical model, workers are assumed to have perfect information about the current price level and their real wage. They don't need to form expectations because they can accurately calculate the real wage based on current market prices.

This means the labor supply curve is based on the real wage, unaffected by any uncertainty about future prices.

In the Keynesian model, workers are considered boundedly rational. They may not have perfect information about current prices and may need to form expectations about future prices to determine their real wage. This expectation about the price level can affect their labor supply decision.