Question

Explain why the neoclassical economists believe that the government does not need to do much about unemployment. Do you agree or disagree? Explain.

Short answer

Neoclassical economists think the economy self-regulates don't think it's necessary to intervene in the economy since it will take care of itself. This is why they don't pay attention to the issue of current unemployment rates in a certain economy.

Step-by-step solution

Concept introduction

When the AD curve intersects the LRAS curve, neoclassical economists believe in long-run equilibrium. The economy adjusts on its own. They are primarily concerned with increasing output rather than the rate of inflation.

Explanation of solution

Neo-classical economists believe that high inflation is preferable to low output. This is because, in the long run, inflation will decrease, but the increased output will contribute to economic growth.

As a result of the increased output, the unemployment rate would decrease, resulting in a higher standard of living. They support welfare policies and programmes that provide financial assistance to unemployed people as they look for new employment opportunities.