Unemployment Equilibrium: How Is It Possible?

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Good day , sir.

i am a student from the university of natal, south africa , studying economics and have an assignment due this friday.i am having a problem with the question:

what determines national income equilibrium.examine how an equilibrium level of income can be achieved at a point much below the level of full employment.(50 marks)

please could you assist me in trying to tackle this problem....(if you could just give me a start)

thank you , sir

-- Zaheer Allawoodeen (982174017@students.unp.ac.za), October 25, 2000


The economy can stick at such an "unemployment equilibrium" if (a) wages and prices are sticky, and (b) firms decide whether to hire workers and increase production or fire workers and decrease production depending on whether inventories are shrinking or growing.

In this case, a shortfall of total demand below production will lead firms to cutback production and fire workers, and the economy will find a point of rest with incomes far below the level consistent with full employment.

-- Brad DeLong (delong@econ.berkeley.edu), October 25, 2000.

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