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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

New Keynesian theory holds that wages are not completely flexible because of such things as long-term labor contracts. New classical economists often respond that experience teaches labor leaders to develop and bargain for contracts that allow for wage adjustments. Do you think that the new classical economists have a good point? Why or why not?

To determine

The reliability of wage price flexibility.

Explanation

The wage price flexibility is one of the important pillars of classical theory. According to classical theory, full employment is always maintained by changing the wage rate. However, the new Keynesian theory opposes this concept because of the presence of labor contracts or the intervention of trade unions. As per the classical theory, the unemployment rate can be removed by lowering the wage rate...

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