Labor supply and labor demand in the keynesian model, Macroeconomics

Assignment Help:

Supply of labor, LS (W/P), depends positively on real wages in classical model. It isn't always clear which individuals are included in the labor supply. Labor supply may consist of only individuals in the workforce or it may have a wider definition including individuals which are outside the labor force though would like to work if they could find a job. The second category may comprise so-called 'discouraged workers' and individuals which are in school but who would rather work. 

Keynesian labor supply differs from classic labor supply in that it includes individuals which are outside the workforce. Thus for a given real wage, Keynesian labor supply is larger than the classic labor supply. Though Keynesian labour supply is still a positive function of the real wage. 

Demand for labor LD (W/P) is the same as for classical model. It is derived from marginal product of profit maximizing firms. Following graph illustrates the classical labor supply, Keynesian labor supply and labor demand. 

1933_Labor supply and labor demand in the Keynesian model.png

Figure: Classical and Keynesian labor supply

Note that for classical equilibrium real wage, Keynesian supply exceeds the demand. In Keynesian models, we don't presume that real wage will be equal to the equilibrium real wage. The labor market need not be in equilibrium in the classical sense. Though in the Keynesian models, real wage is such that there is always an excess supply of labor (using the Keynesian supply).


Related Discussions:- Labor supply and labor demand in the keynesian model

What has served as money?, As people went from barter societies to more adv...

As people went from barter societies to more advanced economies, money had to be invented. Several things successively served as money in the course of economic evolution. Arrowhea

State the market for overnight loans, State the market for overnight loans ...

State the market for overnight loans Overnight interest rates are rates for loans over a single night - these are the shortest of all interest rates. During the day, banks norm

Assignment #1, Explain the meaning of a production possibilities curve

Explain the meaning of a production possibilities curve

Price and quantity of lumber, The price and quantity of lumber and other bu...

The price and quantity of lumber and other building materials has gone up recently. Show graphically and explain what might have caused this.

Money and Banking, explain with illustration the meaning of credit creatio...

explain with illustration the meaning of credit creation in commercial banks

Determination of gdp in the cross model, Q. Determination of GDP in the cro...

Q. Determination of GDP in the cross model? In the cross model, GDP is determined as the solution to the equation Y D (Y) = Y We may explain

International trade, Suppose home cost pricing prevails in international tr...

Suppose home cost pricing prevails in international trade, while world output is declining. Consider two economies, A and B, both having floating exchange rates and the same moneta

Marginal propensity to save, Marginal Propensity to save  (MPS)  is the r...

Marginal Propensity to save  (MPS)  is the ratio of change in total saving to change in total disposable income. Symbolically,     MPS = ?S/?Y For example, total

Stock of a particular company, Suppose that you have bought a total of 3100...

Suppose that you have bought a total of 3100 shares of stock of a particular company. You bought 1200 shares of stock at $17 per share, 900 shares of stock at $11 per share, and th

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd