In this chapter, Professor Sachs discusses an economy that is not fully employed, or an economy that is in an economic recession or depression. He explains the factors that are responsible for increased unemployment rates, despite no changes in terms of capital stocks or desire to work. Using John Maynard Keynes' General Theory of Employment, Professor Sachs discusses the impacts of the gap in supply and demand of workers on the wage level, and employment, using graphs and thought experiments. Keynes argued that pessimism caused the Great Depression in a self-fulfilling path of rigidity, wage stickiness, and falling output that led to unemployment.
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