| Sumario: | Using a general equilibrium model that is completely free of macroeconomic aggregates, this paper addresses some questions that are central to macroeconomics. Keynes' underemployment equilibrium is replicated, but it is illustrated that this result rests on the assumption that stockholders are so pessimistic that they save (hoard) all unanticipated dividends for a rainy day. If stockholders spend their unanticipated dividends in the next time period it is illustrated that unemployment will converge to zero over time. This process can be speeded by wage adjustments but will occur with or without wage flexibility. In addition, some fairly plausible scenarios involving overfull employment and inflation are presented. Finally, it is illustrated that if the producers in the model attempt to maneuver labor shortages to their advantage, they may be met with unanticipated results. Reprinted by permission of the publisher.
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