Please respond to both students separately with a minimum of 100 words each
Original Post
Classical economists belief that prices and quantities adjust to the changes in the forces of supply and demand and that the economy produces its potential output in the long run. On the contrary, Keynesian economists believe because of price and wage rigidities the economy’s equilibrium output in the long run may be less than its potential output. What is price-wage rigidity? Do you agree with Keynes assessment that wage-price rigidity requires government’s involvement in the markets? Why? Why not?
Micheal
Price-wage rigidity is when prices and wages does not change to the equilibrium. Sometimes wages are locked into contract and cannot change until the contract is up. This does not allow for wages to move until later. Prices may not change because companies can wait and see if the prices either go back down or up. Companies can have the challenge of trying not to lose their customers by raising prices.
I agree with Keynes assessment that wage-price rigidity requires government involvement. When real wage exceeds the equilibrium value it will cause lower employment rate than the natural level. The resulting lower employment rate means that more people are looking for jobs than necessary. The unemployed will not be putting money back into the economy causing it to take longer to reach equilibrium. The government can intervene by lowering interest rates or increase spending trying to decrease the gap from the equilibrium. There are sometimes the government tries things that do not really affect the economy. For example, the government tried to give rebates and it had no impact on the economy. The plan was to give money back to increase spending. The result is not always what they think is going to happen. Some can argue that they should have let the economy naturally corrected itself. There are good and bad that can happen when trying to close the gaps in the economy. It is something that is always argued and just matters on how quickly people should feel the gaps should be there.
Elrik
Classical economic theory states that a change in supply will create an equal and reciprocal change in demand. This theory is based on the assumption that the economy fully uses all available resources for production, especially labor, and that all earned income is spent on goods and services. In this economic model, wages and prices can freely adjust upwards or downwards and the economy is self-correcting without the need for government action or policy change. While classical economic theory may seem sound in theory, it has several flaws when practically applied to real world economies. These issues were addressed by John Maynard Keynes’ economic theories. In Keynesian economics the interplay of supply and demand is reverse in comparison to classical economics. Keynes theory states that a change in demand will cause a change in supply. Keynesian economics also takes into account the realistic fact that an economy does not use all of its available resources, which means that involuntary unemployment exists, in addition to the fact that not all earned income is spent on goods and services. Therefore, in the Keynesian model, prices and wages do not fluctuate to the same degree as they would in the classical model. This is knows is price-wage rigidity and is caused by the propensity for businesses to reduce production, as opposed to reducing price levels, as well as the tendency for workers to resist wage cuts. All of these factors lead to the eventuality that the government will be required to step in to abate downward trends in a nation’s economic cycle.
Why Work with Us
Top Quality and Well-Researched Papers
We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.
Professional and Experienced Academic Writers
We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.
Free Unlimited Revisions
If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.
Prompt Delivery and 100% Money-Back-Guarantee
All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.
Original & Confidential
We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.
24/7 Customer Support
Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
Our Services
No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.
Essays
No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.
Admissions
Admission Essays & Business Writing Help
An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.
Reviews
Editing Support
Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.
Reviews
Revision Support
If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.