Classical economists belief that prices and quantities adjust
to the changes in the forces of supply and demand and that the economy
produces its potential output in the long run. On the contrary, Keynesian
economists believe because of price and wage rigidities the economy’s
equilibrium output in the long run may be less than its potential output. What is
price-wage rigidity? Do you agree with Keynes assessment that wage-price
rigidity requires government’s involvement in the markets? Why? Why not?
