Question

imagine that this year, mexico’s economy experienced a decrease in export sales and an increase demand for imports. because of the resulting decrease in aggregate demand for mexican products and services, industries now have a labor glut and wages have begun to drop. as a neoclassical economist, what would you expect to happen over time in mexico’s macroeconomy?

Answer 1

As a neoclassical economist, I would expect that over time in Mexico's macroeconomy, market forces would lead to an adjustment. The decrease in wages and labor glut would stimulate increased employment, fostering a recovery in the economy and restoring equilibrium.

Step-by-step explanation:

In the neoclassical economic framework, market forces are expected to work toward equilibrium over time. In the given scenario, the initial decrease in aggregate demand led to a labor glut and declining wages. According to neoclassical principles, lower wages would make labor more attractive to employers, resulting in increased hiring and reduced unemployment. As employment levels rise, consumer spending could potentially increase, contributing to a recovery in aggregate demand.

The neoclassical perspective emphasizes the self-adjusting nature of markets, where changes in prices, wages, and employment act as mechanisms to restore equilibrium. While the initial economic downturn is a concern, the neoclassical approach suggests that the market mechanisms will work to stabilize and restore the macroeconomy over time.