according to keynes, involuntary unemployment is possible because of

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Answer 1

Deficient aggregate demand is one of the causes of involuntary unemployment according to the Keynesian model. Because wages are "sticky downwards," when aggregate demand declines, this results in involuntary unemployment.

Cutting real wages will not end current unemployment since doing so will cause aggregate demand to fall even lower. The answer is to boost overall demand.

Adaptive expectations - According to E. Phelps, companies and employees may decide on pay rates based on adaptive expectations (for instance, when prior inflation has been strong, workers may seek an increase in nominal salaries). Pay may rise above market clearing levels as a result of this.

Unemployment plainly excludes wage earners' idleness; instead, it only refers to that portion of idleness that is, from their perspective and given their circumstances at the moment, involuntary.

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Why is involuntary unemployment is possible according to keynes?


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