Question

Do you believe our economy experiences economic growth through an increase in government spending? Over the past decade do you believe an increase in government spending has lead to higher levels of national debt and fewer laborers in the labor force? According to Keynesian Economist wages are sticky downwards; whereas, Classical Economist believe wages are flexible – what are your thoughts? Do you believe wages are directly related to the number of laborers gainfully employed in the labor force? Please explain.

Answer 1

Yes we believe so. The govt expenditure particularly after great depression, financial crisis did contribute to growth. It increases aggregate demand. However if there is large public debt then govt expenditure may be bad due to crowding out effect. We believe it increased debt but we do not believe it led to fewer babourers in labour force. Infact even after govt spending after financial crisis employment rate has increased and is currently very high. Actually there is now natural rate of unemployment.

We subscribe to Keynesnias view. In most of the organised sector wages are sticky downwards. Firms decrease employment rather than reducing wages.

Yes it is directly related. Higher the no. Higher will be wages to attract labour to other sectors.