This is in reference to the assumption of the keynesian model.
2006-10-27 01:45:06 · 2 answers · asked by taylor r 1 in Social Science ➔ Economics
It means that wages do not deflate in times of recession. That is, wages go up in good times but do not fall in hard times. Many people loose their jobs in order to cut costs during recessionary times. The classical economists believe that the economic system can correct itself by a fall in wages. Wages, of course, is the price of labor. When wages fall, the quantity of labor demanded will increase and more people will be employed. Production will then be increased and the economy will climb out of the recession. But, according to Keynes, if wages are sticky downwards, wages will not fall during a recession and the economy will not be able to automatically correct itself. It other words there can be high and prolonged unemployment with the economy being unable to rectify itself. The recession gets so bad it becomes a depression. Government will then have to intervene through government expenditure to bring the economy out of a depression. This happened during the Great Depression and inspired Keynes to write his General Theory. Government expenditure during the Second World War was believed to have brought the economy out of the Great Depression.
2006-10-27 02:03:37 · answer #1 · answered by Einmann 4 · 1⤊ 0⤋
well according to economics, if something is in more demand, its price goes up. Well, that doesn't always work, does it? Let's say everyone wants to not work the day after the World Series.. That means every employee wants that day off. According to economics, that means that bosses should pay more in order to keep their employees in their chairs the day after the World Series.
Well that doesn't work, does it? Is there any boss who's going to pay twice as much, to make people work on the day after the World Series?
On the other hand, maybe everybody wants to work extra in December, to buy more Christmas presents. If everyone wants to work overtime, that means the bosses can pay everyone $2 less per hour, right? Since everyone is dying to work?
No, because it just doesn't work that way. Prices are sticky, like the price of keeping your butt in your chair on a workday.
2006-10-27 09:14:56 · answer #2 · answered by Chris P 3 · 0⤊ 0⤋