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Keynesians want to encourage spending in order to keep wages high. That's because an increase in spending causes an increase in aggregate output. However, it's
by jacinabox 8y ago
Keynesians want to encourage spending in order to keep wages high. That's because an increase in spending causes an increase in aggregate output. However, it's unlikely that the employee will benefit. In the first place, if the marginal propensity to consume is less than 50%, and therefore the Keynesian multiplier less than two, then an increase in consumer spending will not pay for itself in wage growth. Further, the gap between spending and wage growth is increased because wages form a small component of the unit cost of any good. If spending on a good increases by some amount, then the wages increase derived from that spending will be much less. As usual it might be concluded that people are better off saving their money than spending it on things they don't need or want.