Macroeconomics, 2nd Edition by Pearson

AGGREGATE DEMAND AND AGGREGATE SUPPLY

271

9.2

AD

–

AS

Equilibrium in the

Keynesian Case

As we saw in the chapter on labour markets, the

AGGREGATE

SUPPLY

CURVE

derives

from the workers and firms pursuing their rational self-interest. Workers seek

to maximize their preference for consumption and leisure, whereas firms seek

to maximize profits. In the Keynesian set-up, money wages are inflexible or

sticky at

__

w

. There are many possible reasons for this.

One possibility is that there exist minimum-wages laws that result in an

artificial floor to the wages that firms can pay. Another possibility is that orga-

nized groups of ...