Map of Mariazell on For example, assume that in a given year households begin to save more of their income. The increased supply of saving was asserted to cause the interest rate to fall. In turn, this would induce business firms to borrow these savings and increase their spending on plants and machinery. Consequently, it was believed that, via interestrate adjustments, every dollar of saving would be injected back into the economy’s income-expenditure stream in the form of business-investment spending. Classical economists bolstered their arguments concerning full employment by asserting that if unemployment did emerge, such unemployment would be very brief. In their view, any surplus of labor (unemployment) would quickly cause wages to fall, thus inducing firms to hire all workers willing to work at the prevailing market wage. Although the classical theory of employment was strongly challenged by many critics of capitalism during the 19th and early 20th centuries, it effectively remained the dominant view until undermined by the world-wide Great Depression and the elegant and rigorous presenemployment theory 245 tation of a dramatically different theory of employment by British economist John Maynard KEYNES. Map of Mariazell 2016.
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