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Elucidating the Keynesian and Classical views of salary cutting policies, shift in the IS- LM curves, stagflation and new classical view.

Keynesian thinking dominated US (and other developed-country) policy-making well into the 1970s, although the "classical" counter-arguments kept up a steady criticism:

a. Regarding the original classical emphasis on wage-cutting as a solution-and hence the implied diminution in the power of organized labor to resist-how was this supposed, in theory, to work to restore full employment? (I.e. how did it shift both IS and LM curves?

b. In regard to the "stagflation" problem of the 1970s (actually, starting in the late 60s and continuing into the early-mid 80s), why was Keynesian unable to offer a realistic solution and as consequence, what was the "new" classical view of policy-making that became the new norm?

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M922162

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