In (a), the quantity demanded of labor at the original wage (W 0 ) is Q 0 , but with the new demand curve for labor (D 1 ), it will be Q 1 . Similarly, in (b), the quantity demanded of goods at the or...In (a), the quantity demanded of labor at the original wage (W 0 ) is Q 0 , but with the new demand curve for labor (D 1 ), it will be Q 1 . Similarly, in (b), the quantity demanded of goods at the original price (P 0 ) is Q 0 , but at the new demand curve (D 1 ) it will be Q 1 . An excess supply of labor will exist, which we call unemployment.
Keynesian economics focuses on explaining why recessions and depressions occur and offering a policy prescription for minimizing their effects. The Keynesian view of recession is based on two key buil...Keynesian economics focuses on explaining why recessions and depressions occur and offering a policy prescription for minimizing their effects. The Keynesian view of recession is based on two key building blocks. First, aggregate demand is not always automatically high enough to provide firms with an incentive to hire enough workers to reach full employment. Second, the macroeconomy may adjust only slowly to shifts in aggregate demand because of sticky wages and prices, which are wages and price
