Answer to Question #100160 in Macroeconomics for Tiffany

Question #100160

1. Macroeconomics can be a difficult topic to define. For the most part, it can be defined by the specific topics with which it is concerned. Among these are output, inflation, unemployment, interest rates, and international trade. At first these topics may seem unrelated, but some thought shows that they are intimately related.
a. The AD/AS model describes changes in the economy by relating real GDP (output) and the price level.
(i) Compare and contrast the Keynesian portion of the AD/AS model with the classical portion of the AD/AS model, and explain how the level of production is determined in each situation. Use graphs to explain your answer.
Answer:

(ii) Compare and contrast changes in aggregate demand and changes in aggregate supply in the AD/AS model. Use graphs to explain your answer.
Answer:

Expert's answer

The Classical model shows the aggregate supply curve as vertical because this model holds that the economy is at its full employment level.

The Keynesian model shows the aggregate supply curve is upward sloping because wages and prices are less flexible in the short-run.