ECON 200 Lecture 10: class feb 21
Document Summary
Keynes claims classical economists could not explain involuntary unemployment (workers (cid:449)illi(cid:374)g to (cid:449)ork at (cid:272)urre(cid:374)t (cid:449)ages (cid:271)ut (cid:272)a(cid:374)"t fi(cid:374)d a jo(cid:271)) Problem (according to keynesians) is that wages are rigid. That is they slowly adjust when supply and/ or demand change. They chose to leave no unemployment. Firms produce only what they expect to sell. Markets (ad) are unstable: because expectations are unstable. Investment demand (i) is especially unstable: herd behavior, ignorance rats running off cliff into water. They change very slowly to changes in supply & demand conditions. People are myopic: short-sighted plan week-to-week. Say"s la(cid:449) is (cid:271)a(cid:272)k(cid:449)ards demand creates its own supply: no income = no demand curve, when you sell you hope people want your product. Keynes = no gi(cid:448)e people (cid:373)o(cid:374)ey a(cid:374)d they"ll spe(cid:374)d. Source of troubles: positivity activities depend on spontaneous optimism. Animal spirits (bear & bull) give you spontaneous urge of action.
