DEATH OF TWO MAXIMS: Prices & Wages Do Not Depend on Demand

TWO cherished economic maxims no longer hold true in the U.S. economy of today:

¶Prices do not rise and fall in strict relation to the demand for goods and services.

¶Wages do not drop or climb according to the supply of labor—or the amount of unemployment.

These lessons, brought home by the current recession, were the principal topics of 47 leading economists who were asked by the Joint Economic Committee of Congress to examine the question: can the U.S. achieve maximum (or full) employment as laid down in the Employment Act of 1946 and at the same time achieve stable prices? The...

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