wage price flexibility | pigous wage cut theory | pigou effect | classical macroeconomics
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- Опубліковано 29 жов 2024
- wage price flexibility | pigous wage cut theory | pigou effect | classical macroeconomics
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The flexibility of wages, rate of interest and prices
According to classical theory, full employment is a normal condition of a free
capitalist economy. Unemployment is a temporary phenomenon and self-correcting.
Classical theory is based on
Say's Law of Market
The flexibility of wages, rate of interest and prices.
Demand for labour is inversely related to real wages, with rise in real wage demand for labour falls and with fall in real wage demand for labour rises.
N^d=∫▒〖 ( W/P)〗
supply of labour is directly related to real wage with fall in real wage supply of labour falls and with rise in real wage supply of labour also rises.
N^S=∫▒〖 ( W/P)〗
Equilibrium condition for the labor market, N^S=N^D (full employment level)
According to Prof. Pigou unemployment in the economy arise due to wage rigidity and by the interference by the government in labour market. Unvoluntary unemployment can be removed by redaction is the wage.
Classical economists were of the view, that if unemployment is found in an economy, then money wages will fall. With fall in money wages there will be corresponding fall in real wages. As a result, demand for labour will increase and full employment situation be restored.
Prof. Pigou has explained That employment (N) and money wages (W) are inversely related. with the help of the following equation:
N= QY/W
If that part of the national income which is paid to the labourers as wages (QY) remains constant then fall in wage rate (W) will lead to increase in the level of employment (N).
SAY'S LAW OF MARKET
J B Say's Law of Market states that "Supply creates its own demand." Say belief that in the long run there is a tendency towards equality of aggregate supply and aggregate demand and therefore, a general over-production or over-supply is not possible.
Assumptions of Say's Law of Market
Perfectly Competitive Economy
Flexible Prices
Money is only a medium of Exchange
No Hoarding
Long Period
Explanation
When a producer sells his products, he gets his income in terms of money. He will spend this money to buy other goods and services. The value of demand so created will be equal to the value of the goods supplied
Thank you sir❤
How will the equilibrium values be affected if the wages are rigid ??
Your target audience comprises all grown up adults. From college freshers to UGC NET aspirants, none of them are kids. Please stop this "toh bachho" in every other line. it's pretty weird.
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