Chapter Outline•Rigidity of Real-Wage •Stickiness in Price•Monetary and Fiscal Policy in Keynesian Model•The Keynesian Theory of Business Cycles and Macroeconomic Stabilization1
3Critique of Classical School on Keynesians:The Classical School view is rooted in the micro-foundations of macro-economics- Market clearing equilibrium is the ‘only game in town’;- Keynesianism is jerry-built.
5What wage is inflexible?•Keynes initially assumed money wage was downward inflexible, not real wage. Why? Workers may not reject a fall of the real wage, due to
Figure 11.2 Excess supply of labor and the realwageMaybe the real wage is ‘efficient’9