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Keynes and the Neoclassicals 1.  Does it make sense that wages would be sticky downwards but not...

Keynes and the Neoclassicals

1.  Does it make sense that wages would be sticky downwards but not upwards? Why or why not? (25 points)

2.  Explain why the neoclassical economists believe that the government doesn't need to do much about unemployment. (25 points)

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Expert Solution

1) according to Keynesian economics the wages would be sticky downwards but not upwards because of the existence of trade unions. Trade unions will not let the wage to cut down by the industrialists so it is sticky downwards.

2)the neoclassical economists believe that the government doesn't need to do much about unemployment because according to them wages and price are flexible in the economy and any discripancy in the economy will be solved by the invisible hand(automatic adjustment). So according to them if there will be more unemployment then the wage rate will automatically decrease and industrialists will hire more people in low wage rate. So the problem of unemployment will be solved. Government doesn't have to do anything here.

Rahul Sunny answered 2 years ago
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