ECS4861 Assignment
3 | Due 13 August
2025 complete
answers
NO PLAGIARISM
[Pick the date]
[Type the company name]
, Exam (elaborations)
ECS4861 Assignment 3| Due 13 August 2025
• Course
• Advanced Macroeconomics (ECS4861)
• Institution
• University Of South Africa (Unisa)
• Book
• Modern Macroeconomics
Wage and Price rigidities in an economy - Evaluate the statement “Wage and price
rigidities are necessary for Keynesian economics to explain involuntary unemployment”
with reference to Keynes’s general theory, New Keynesian economics and the orthodox
Keynesian school.
To evaluate the statement “Wage and price rigidities are necessary for Keynesian economics
to explain involuntary unemployment,” we need to explore how different strands of Keynesian
thought—Keynes’s General Theory (1936), the orthodox Keynesian school, and New
Keynesian economics—understand involuntary unemployment and the role of wage and
price rigidities.
1. Keynes’s General Theory (1936)
In The General Theory of Employment, Interest and Money, Keynes challenged the classical
assumption that markets (including labour markets) always clear through flexible prices and
wages.
a. Involuntary Unemployment
Keynes argued that involuntary unemployment arises when workers are willing to work at the
prevailing wage but cannot find jobs. This is not due to excessive wages, but due to
insufficient aggregate demand.
b. Role of Wage and Price Rigidities
Keynes did not assume rigid wages and prices as the sole explanation. Rather:
• He emphasized the role of aggregate demand shortfalls.
3 | Due 13 August
2025 complete
answers
NO PLAGIARISM
[Pick the date]
[Type the company name]
, Exam (elaborations)
ECS4861 Assignment 3| Due 13 August 2025
• Course
• Advanced Macroeconomics (ECS4861)
• Institution
• University Of South Africa (Unisa)
• Book
• Modern Macroeconomics
Wage and Price rigidities in an economy - Evaluate the statement “Wage and price
rigidities are necessary for Keynesian economics to explain involuntary unemployment”
with reference to Keynes’s general theory, New Keynesian economics and the orthodox
Keynesian school.
To evaluate the statement “Wage and price rigidities are necessary for Keynesian economics
to explain involuntary unemployment,” we need to explore how different strands of Keynesian
thought—Keynes’s General Theory (1936), the orthodox Keynesian school, and New
Keynesian economics—understand involuntary unemployment and the role of wage and
price rigidities.
1. Keynes’s General Theory (1936)
In The General Theory of Employment, Interest and Money, Keynes challenged the classical
assumption that markets (including labour markets) always clear through flexible prices and
wages.
a. Involuntary Unemployment
Keynes argued that involuntary unemployment arises when workers are willing to work at the
prevailing wage but cannot find jobs. This is not due to excessive wages, but due to
insufficient aggregate demand.
b. Role of Wage and Price Rigidities
Keynes did not assume rigid wages and prices as the sole explanation. Rather:
• He emphasized the role of aggregate demand shortfalls.
