Answer to Question #89505 in Macroeconomics for Jorama

Question

hello, just need you guys to answer this question. Classical economists believe that if the economy is left on its own, without any
intervention such as in a. above, there will be automatic adjustments towards full
employment equilibrium. Explain.

Answer 1

Answer: In a recession, the return to full employment can not be achieved automatically. However, after this will be ensured by measures of state regulation, the postulates of the classical model will come into force again. In other words, if the neoclassical concept claims that the labor market is fundamentally equilibrium and only the effect of non-market factors hinders its self-adjustment, the Keynesian theory concludes that the fundamental labor market imbalance stemming from its inherent properties, then the neoclassical synthesis asserts the loyalty of the Keynesian model in the short run and classical - in the long run.