Answer to Question #125660 in Macroeconomics for Yo

Question

Which of the following contradicts the classical explanation of the economy?

[1] Voluntary unemployment.

[2] Frictional unemployment.

[3] Full employment.

[4] Involuntary unemployment.

[5] All of the above.

Answer 1

The classical explanation of the economy maintains that the economy is always capable of achieving the natural level of output, which is the level of real GDP that is obtained when the economy's resources are fully employed.

For the case of Voluntary Unemployment, the unemployed chooses not to accept a job at the given wage rate thus the economy's resources is not fully utilised, hence contradicts the classical explanation of the economy.