Question

According to Neoclassical and Keynesian economics, what causes involuntary unemployment, respectively?

Answer 1

Involuntary Unemployment is a situation where workers are willing to work at the current wage rate but are yet unemployed.

Causes of involentary unemployment, according to Neoclassical and keynesian economics is deficit aggregate demand. When aggregate demand decreases, this leads to involentary unemployment because wages are sticky downwards. Cutting of real wages would not put an end to unemployment because cutting real wages will further decrease the aggregate demand. The only way to solve the problem is to increase aggregate demand.