When using the classical prescription for curing unemploymen

When using the classical prescription for curing unemployment the national wage rate has been drop so that workers will be pay 50% less. So that the firms employing them can produce their product at a lower cost and sell it at a higher cost. Is it a possibility, that at a lower wage the economy would shrink to the point where wages are equal to the price of products? Or what would likely happen?

Solution

With a lower wage, input cost will be less and a firm can earn higher profits at the same prices. It is not possible that an economy could shrink to a point where W=P as it will be not profitable for firms to produce. cost=Price.

It is likely to happen that prices will be relatively less as there is lower cost of production but it will not be equal to wages.