Demand and Supply-side causes of unemployment

demand-side

a lack of AD in the economy causes a lack of demand for labour as firms reduce output(demand-deficient)

supply-side

workers less able to supply their work for various reasons, i.e. incompatible skills, immobility or social reasons

emphasise supply side factors as the main causes of unemployment. Demand side is mostly short-term

What do classical economists believe about whether supply side or demand side factors being more important?

emphasise the importance of AD in determining unemployment. Its all about the economic cycle.

What do Keynesian economists believe about whether supply side or demand side factors being more important?

sticky wages, consumer spending impacts unemployment, efficiency wages theory, confidence impacts employment, we’re all dead in the long run

What did Keynes believe about unemployment and why did he want government intervention to stimulate the economy?

workers are not willing to accept a wage cut

Why are wages sticky according to keynes?

wages are cut, fall in consumer spending, AD, unemployment situation worse

When ____ ___ ___ then there is a _____ __ ______________ ____________ this causes a fall in __. Therefore this makes the ___________ _________ ____

mass unemployment in 1930s fell when the government began to spend more on military when WW2 came

Application for Keynes’ theory that governments must intervene to stimulate the economy

Efficiency wage theory

this theory states that if wages are cut workers become dispirited and work less hard leading to lower output

confidence is low, reluctant, more, lower

During a recession ___________ __ ___ and firms are _________ to spend money on employing ____ workers even at a _______ wage

we are all dead

Keynes said in the long run wages may adjust, but in the long run___________! In other words, why wait several years hoping wages will adjust downwards to reduce unemployment