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?
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