How would the Classical/Neoclassical model suggest that we understand the phenomenon of unemployment? Explain. What does...

How would the Classical/Neoclassical model suggest that we understand the phenomenon of unemployment? Explain. What does this model have to say regarding the existence of involuntary unemployment?

Expert Solution

The fundamental characteristics of classical macro is the reliance on market and non reliance on monetary variable to solve the problem of unemployment . In this model involuntary unemployment does not exist . In this model deficit spending only increases general price level without affecting the unemployment level . Moral of the story is that laissez faire without government intervention is the best way to run an economy.

Classical macroeconomics relied on the unfettered market mechanism to resolve the problem of unemployment. Any involuntary unemployment according to the classics is a short run phenomenon in nature and any policy to correct the situation would lead to worse economic outcome .

In classical formulation, aggregate demand has no role in determining unemployment. This idea is formalized by a theorem known as `Say's Law' which states that Supply creates its own demand. This means that goods produced by an agent creates equal amount of income and aggregate demand for goods. According to this law There can be `glut' which will be disposed only in the short run. Because demand played no role in national income determination classical macro-economics, demand management policies such as fiscal and monetary policies was not part of classical prescription to cure recession.

Rahul Sunny answered 2 years ago

How does the classical/neoclassical theory’s “Say’s Law” (or the saving-investment mechanism) suggest that the economy will...

How does the classical/neoclassical theory’s “Say’s Law” (or the saving-investment mechanism) suggest that the economy will adjust when a demand-side “shock” caused by a decline in consumption spending occurs? Why did Keynes believe (and why do many economists still believe) that these adjustments will not occur? Answer both of these questions with regard to a demand-side “shock” caused by a decline in investment spending.

What determines the unemployment rate in the Long Run? Explain using the Classical model, Keynesian model...

What determines the unemployment rate in the Long Run? Explain using the Classical model, Keynesian model or Phillips curve.

What does convergence mean in the neoclassical growth model?

explain how to understand what the Supreme Court does and how to understand the cases it...

explain how to understand what the Supreme Court does and how to understand the cases it hears in America. Please be comprehensive about the whole process.

The document should explain i) what the Markowitz model would suggest that investors do (i.e., how...

The document should explain i) what the Markowitz model would suggest that investors do (i.e., how one should invest to achieve a certain investment goal – e.g., 15% expected return – in the 5 country portfolio example, ii) limitations and pitfalls of the Markowitz model, iii) potential mitigations, iv) what the Black-Litterman model does, and v) why it does that. How to explain generally the Markowitz model and Black-Litterman model.

3). In the classical model, what happens to GDP, Prices, Unemployment and economic growth if the...

3). In the classical model, what happens to GDP, Prices, Unemployment and economic growth if the Federal Reserve increases the money supply? Make sure to include the money graph and the good (AD/AS) graph.

1)In which areas does classical economics and neoclassical economics differ in which are similar? Explain precisely.

Using the AD-AS model, graph and explain what would happen to unemployment and inflation in the...

Using the AD-AS model, graph and explain what would happen to unemployment and inflation in the following situations. a) Assume the economy begins at potential output. Consumer confidence rises. What is the short run effect? b) Starting with the previous question, consumer confidence rises. What is the long run effect?

how does the classical model explain a lower period of lower output and rising prices (higher...

how does the classical model explain a lower period of lower output and rising prices (higher inflation)?

3. What form of unemployment is consistent with the Classical Model? 4. Provide a brief explanation...

3. What form of unemployment is consistent with the Classical Model? 4. Provide a brief explanation of the Quantity Theory of Money. 5. Why is monetary policy ineffective to combat recession in the world of the Classical Model?

Question