Answer to Question #264539 in Macroeconomics for Natash

Question

1. difference(s) between the classical and Keynesian aggregate demand schedules. In your explanation indicate what factors shift aggregate demand in the classical model and Keynesian model? (4)

What is the key difference between the classical and Keynesian aggregate supply functions? What are the key factors that drive these differences? (4

Answer 1

Keynesian theorists believe that aggregate demand is influenced by a series of factors and responds unexpectedly which are: Shifts in aggregate demand impact production, employment, and inflation in the economy. Classical model on the other hand believes that aggregate demand is predetermined by money supply. Also, The classical model assumes that the level of real GDP is supply determined, while the Keynesian model assumes that it is demand determined.

The key difference between the classical and Keynesian aggregate supply functions is their slope of the function . The classical aggregate supply function is vertical whereas , in the short - run , the Keynesian aggregate supply curve slopes upward to the right . The difference is that the classical model is one of perfect competition , while in the Keynesian model wages and prices are imperfectly flexible .