Economics Essay Example | Topics and Well Written Essays - 1000 words - 17

Economics - Essay ExampleIn a closed economy where there is no foreign trade, the level of outputs that ar produced will be at market equilibrium as the demand levels will further be met by the provide levels. However, during recessions, when un usance rate rises, the demand will still be met by the supply, although the demand level will be lower. This is why in the goods market prices and quantity will settle at the equilibrium but naughty unemployment can still be present in the economy. This has been termed as the Keynesian unemployment.As what has been described earlier, in determining output to meet the demands, there are twain popular opinionsthe Keynesian and the classical prospect. The classical view argues that prices and wages are flexible, in such a way that excesses in either demand or supply will quickly be absorbed by the economy and resume full employment of resources after economic shocksor abrupt changes in the blend demand and supply curves. The Keynesian vie w on the other hand argues, as apparent in its sticky theory of prices and wages which says that these two factors are sticky in the short run because of contractual rigidities such as agreements made with several(predicate) interest groups such as the project unions. In the latter situation, the one proposed by Keynes, higher levels of aggregate demands are needed for output to respond positively because aggregate supply curve is relatively jejune especially when output levels are low. In this situation, the economy can have long periods of unemployment because prices and wages are slow to adjust to shocks, and reaching full employment of resources is slow to reach.When classical economists argue that unemployment results from the interaction of the labor demand and supply curves, and lowering the wages will spread the labor supply which can trammel unemployment in the process,