Answer to Question #233378 in Macroeconomics for Uplinking Kelvin

Question

Describe Keyne's theory of aggregate demand as it relates to wage levels and employment. Did Keynes believe that unemployment is caused by sticky wage.

Answer 1

Keyne's theory tends to focus on aggregate demand. Companies produce products when only they are expecting to sell it. Further, aggregate demand changes are linked directly to GDP changes, without price level adjustments. Based on the theory of Keynesian wage, aggregate demand level influences employment volume and real wage.