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CLASSICAL-KEYNESIAN CONTROVERSY

8 May, 2015 - 11:23

Keynesian employment theory is built on a critique of the classical theory. In this critique, Keynes argued that savers and investors have incompatible plans which may not assure that an equilibrium exists in the money market, that prices and wages tend to be rigid and equilibrium may not exist in the product and labor markets, and that periods of severe unemployment have occurred (which the classical theory denied).

The Keynesian theory was developed in the wake of the great depression. It was very hard to argue then that only voluntary unemployment can exist as millions of workers were out of work.