John Maynard Keynes challenged all four of the beliefs on which the classical position of the economy was based and concluded that the economy could get stuck in a recessionary gap.
1. Explain why Keynes believed that Say’s law might not hold in a money economy.
2. Explain why Keynes believed that wage rates might be inflexible.
3. Describe the New Keynesian economists’ arguments as to why wage rates might be inflexible.
4. Explain how inflexible wages can keep the economy from recovering from a recessionary gap.
5. Describe why Keynes believed that the price level might not fall.
6. State the position taken by many economists today concerning wage and price flexibility.