Question

. According to the Classicals, deviations from full employment are due to adjustments from shifts in...

. According to the Classicals, deviations from full employment are due to adjustments from shifts in the labor supply and demand curves. These shifts were discussed in chapters 8 and 9. Why do Keynesians argue this point?

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Classcal economists argued that full employment was general condition and any deviation from full employment is corrected through the flexible wage rate and interest rate.

but keynesians do not agree with this proposition. they argue that wage rate is not flexible enough to adjust during the fall in aggregate effective demand. Hence, wage rate remains high even during the period of recession or deficient demand. Thus, government must intervene here to increase aggregate effective demand to correct imbalances in economic activities.

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