Abstract
This paper (a revised version of Strathclyde Paper 2004-07) questions the thesis (again in fashion) that price flexibility ensures full employment. (See most standard macro textbooks.) We make the point that explanation of unemployment in terms of price/wage stickiness typified much preKeynesian analysis, but not Keynes’s theory of involuntary unemployment. Under uncertainty - an essential aspect of the Keynes conception - no set of prices consistent with full employment may actually exist: if so, price inflexibility is not the critical obstacle to the attainment of full employment. Finally, with respect to current use of the AD/AS model, we note that once-rejected ideas have returned to the mainstream and that the strong arguments against attribution of necessarily beneficent effects to price and wage flexibility, which ought to be well-known, seem now to be forgotten.
Original language | English |
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Place of Publication | Glasgow |
Publisher | University of Strathclyde |
Pages | 1-42 |
Number of pages | 42 |
Volume | 16 |
Publication status | Published - 2016 |
Keywords
- price adjustment - the rate of interest, wages, the price level
- classical and keynesian perspectives
- counting equations and unknowns
- the ADAS model