Answer to Question #313170 in Macroeconomics for captain nyagah

Question

discuss the difference between unemployment in the classical and Keynesian model

Answer 1

Classical unemployment occurs when the real wages are too high and remain above the market equilibrium wage rate causing surplus labor supply. The model argues that the problem of unemployment can be solved if wages remain more flexible. 

On the other hand, the Keynesian model argues that real wages do not determine unemployment but the government policy determines the level of unemployment in the long run. A low unemployment rate will be achieved if the government accepts a high bust steady inflation rate.