Macro Economics Essay Example | Topics and Well Written Essays - 500 words - 1

Macro Economics - Essay fontThe focus shifts from spending to save more of the current income for future spending. Thus in reacting to this less expenditure on the part of the consumers and the investors the firm give lower their production resulting in less output. Reduction in the wage rank of the workers in this circumstance testament not contribute to the elimination of the huge unemployment rate prevailing in the prudence. Simultaneous decrease in the interest rates in the economy will also not succeed in returning the economy back in the original dock (Gwartney, Stroup, Sobel and MacPherson, 228). Wages and interest rates are considered fixed in the Keynesian theory. According to the theory regular(a) if there is a decline in the wage rate a negative impact will be exerted on the economy through the reduction in income and hence reduction in mass demand. Keynesian theory rejects the view of the classical economists that market forces will bring back the system of boun teous employment in the economy. Equilibrium in the economy will be reached when the total spending in the economy will be equal to the total output. Changes in output may drive the economy to a certain extent towards the equilibrium as opposed to price changes as suggested by the another(prenominal) stream of economists.