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1) Compare and contrast the Keynesian and neoclassical views on unemployment. 2) How economies use the...

1) Compare and contrast the Keynesian and neoclassical views on unemployment.
2) How economies use the natural rate of unemployment to decide which type of fiscal policy to use?
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Answer #1

1) Keynesian view unemployment as the result of wage and price rigidity. Whenever there is a decrease in total spending. Profit to firms tend to fall but due to rigidity in prices and wages firms terminate workers and reduce employment. This results in unemployment.

Neoclassical economists see unemployment as voluntary unemployment. According to them wages are flexible. Whenever there is decrease spending in the market, firms reduce wages but workers do not accept wage cut and leave the job. This results in unemployment.

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