Learning Journal Unit 5 - PSYC 1580.docx - According to...

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According to Liberto (2019), "The New Keynesian Economics is a modern macroeconomic school of thought that evolved from classical Keynesian economics. This new revised theory is different in terms of how quickly the price and wages changes than classical Keynesian's". The one significant disagreement between the new Keynesian economic and classic Keynesian theory is the assumption of how wages and prices quickly adjust. The new classical economics believes that wages and price are flexible, and that price can clear the market demand and supply because price and wages are adjustable, and they can easily adjust quickly. The new Keynesian Economics theory argues that unemployment is caused by efficiency in wages. On the other hand, other economics theories argue that the large supply of labor would put downward pressure on wages. Consequently, when the companies offer a lower salary, their demand for laborers increases, but this causes reducing the labor supply as laborers are not ready to work at that wage, so unemployment increases. Because as the new Keynesian economics

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