2 ms·
This is a purely classical (pre-keynesian) story - demand goes down in many individual markets, and the market adjusts by reducing prices and quantity supplied.
by yummyfajitas 11y ago
This is a purely classical (pre-keynesian) story - demand goes down in many individual markets, and the market adjusts by reducing prices and quantity supplied. It has no output gap, no involuntary unemployment (read: wages at a price $P, but people willing to work at $P and unable to find a job), etc.
You've just shown that classical economics explains the Greek situation perfectly, contradicting Varoufakis.
- crdoconnor 11y agoNo, neoclassical economics would have us believe that wages would go down until a clearing price was hit and everybody was employed. This is, indeed, exactly the type of mind numbing idiocy that Varoufakis was talking about.
- yummyfajitas 11y agoThat's exactly what happens in your story. Wages go down from $P to $P2. Fewer people are willing to work at $P2 than at $P, so employment goes down. That's a standard market clearing story. The classical claim is that don't have involuntary unemployment - prevailing wage levels equal to $P (in some segment) and simultaneously people unable to find work at $P. Your story agrees with this.