Abstract
This paper presents a disequilibrium macro model with inventories, rational expectations, and flexible prices. It is found that less than full employment equilibria are possible, even highly likely, in the intermediate term and that wage reductions will cause employment to drop. Increasing aggregate demand will raise employment only if it is done gradually. On a technical level, we have multiple switching lines, disconnected regimes, and a connected equilibrium set which borders on a switching Iline and otherwise lies in a single region.
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