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On a product market costumers’ search costs bring about a kink in a firm’s conjectural demand curve. As a consequence different unemployment regimes are derived from different kinds of labor markets. Then the effects of demand policy are analyzed. In case of static expectations demand policy is effective and full employment can be realized by deficit spending. In case of adaptive expectations demand policy is effective as long as it does not cause prices to rise. In case of “classical expectations” demand policy is ineffective. Finally, it shows that supply side policy is only effective in the long run.

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