Acording to the Keynesian and New Keynesian theories; a. Show and explain the existence of involuntary...

Acording to the Keynesian and New Keynesian theories;

a. Show and explain the existence of involuntary unemployment in the labour market by using the Efficiency Wage Theory.

b. Is the employment level that you found same with the full employment level indicated by the classical labour market theory? Why? Why not?

c. According to the Keynesian theory, what would be the effect of the “ A wave of investor and consumer pessimism about the future profitability of capital investments and lower future income “ on output (Y), the real interest rate (r), employment (L) and the price level (P) ?

Distinguish between the short run and the long run effects by using the IS-LM-FE and AD-AS models and effective labor demand theory.

Expert Solution

a) Keynesian automatic unemployment is characterized, obviously, as the circumstance wherein jobless specialists are eager to acknowledge employment at presently winning genuine wages (or somewhat lower wages) or as the circumstance where employment can be expanded by expanding powerful interest with an unaltered degree of genuine. In the given figure 1, the work gracefully bend Sl is having two-section. In light of unbending nature SL bend is increasingly flexible. Accept fixed wage rate W and SL bend is flat. over this wage rate, the cash wage rate is allowed to increase. along these lines SL in this locale is certain.

In the new Keynesian theory, Shirking models of productivity wage theory, express that businesses have a motivation to pay a wage over the market-clearing level. If so, and effectiveness wage installments are broad then it can cause automatic unemployment with wages over the harmony and wages.

b) Yes, this employment level is equivalent to the class full employment level Shirking models of effectiveness wage theory, express that businesses have a motivating force to pay a wage over the market-clearing level. If so, and productivity wage installments are far reaching then it can cause automatic unemployment with wages over the balance and wages. alluding to the figure 3 and 4.

c)The impact of a flood of an investor or client cynicism goodly affects the proficiency as the premium goes down so the cost is lower and utilization up the interest for yield Y0to y1, loan cost ri to ri+1 and employment level additionally Y1. so there is a general development because of the effectiveness. In figure 5 in the short-run the FE 0 show the short-run impact though FE1 indicatest Long run and how in since quite a while ago run economy use to be balanced without anyone else. In AD-AS bend it is been plainly demonstrate that the wage level and balance level of out is fixed in the log.run,

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Rahul Sunny answered 2 years ago

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