The model of aggregate supply aggregate demand – Impact of the savings to increase consumption?
In the aggregate supply – demand model total term prices in the short sticks, why, exactly, an increase in consumption savings (a reduction of consumption expenditure) driving GDP growth falling below the full employment? What I understand is why the conventional analysis of the savings Change does not come through in this context. Suppose the money supply, government spending and Inflation expectations are constant.
In As consumers increase savings, buy fewer goods. This forces companies to reduce production or prices or both. To compensate for the loss of revenue, companies must reduce costs. Since capital is fixed in the short term, reduce costs by laying off workers. According to the classical framework, which means the demand for labor fell, making the labor market to reach equilibrium at a point with a small amount more work, lower wages and no unemployment. However, if wages are sticky in the short term, then the job cuts not accompanied by a decrease wages. You will then have a situation where a certain level of wages, the amount of work (ie, the number of job applicants) is greater demand for jobs (vacancies). This "extra" work, unemployment.
Introduction to the Supply and Demand Model
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