Classical Model the New Classical Term Paper

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Therefore, this model is focusing on how an increase in labor productivity will lead to involuntary unemployment. The below chart is highlighting how this is occurring. (Fazzari)

The Radical Keynesian model thinks that output increases from higher levels of productivity. This is because demand is constrained and firms have to see an improvement in sales. However, they do not think that falling prices will restore full demand. This is because these declines will help them believe that prices will fall even further in the future (which restrains spending). This causes bankruptcies to increase and it is eroding the wealth of borrowers. These issues are forcing aggregate demand to remain the same instead of shifting outward. (Fazzari)

Since wages and prices are flat, they do not help to improve unemployment or output.

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This is from aggregate demand remaining the sluggish (which is making wages and price adjustments stagnant). In the future, this is hurts output and unemployment in contrast with previous levels. This can cause the underlying economic situation to become even worse. The below chart is illustrating how this is taking place. (Fazzari)

These areas are illustrating that when a firm cuts prices, it will not have a positive impact on aggregate demand. This is because it remains the same from destabilizing the marketplace. This creates an increase in unemployment from improved output and declining profit margins. It is at this point that economic growth will remain stagnant based upon the challenges that it is facing. (Fazzari)

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