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Recession Of The 1930's

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Prior to the 1930’s, economists operated on the idea that the economy operated on full capacity and that there was no unemployment. However, the recession of the 1930’s quickly challenged this idea. Keynes explanation for this situation was viable, and is still around today, known as the Keynesian model. Keynes concluded that the short-run aggregate supply curve in the 1930’s was largely flat. This was due to several key factors. Unions and other means of protecting workers interests succeeded in making the wage rates almost unmovable. This means that once production is reduced, so is employment. A reduction of employment means layoffs. This idea shattered the full employment idea that economists of the time had come accustomed to.

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