ABSTRACT
The disequilibrium approach to macroeconomics emphasises the direct quantity to quantity interaction operating through spillover effects from one market to another. Clower’s (1965) dual decision hypothesis shows how the traditional Keynesian consumption function can be derived from a choice-theoretic framework when households experience involuntary unemployment. The analysis in Part Two above developed the analysis of Patinkin (1965) and Barro and Grossman (1971) to derive an effective demand for labour schedule in which output, itself determined by the level of aggregate effective demand, is the main variable directly determining the level of aggregate employment. Two versions of the model were considered. The strong version denies any influence of real wages on aggregate employment levels. The weak version, which admits substitution possibilities between variable factors of production, suggests that real wages can somewhat influence employment levels in addition to the influence of output.
