Answer to Question #266453 in Macroeconomics for aloe

Question

1.     Compare the effects of an autonomous increase in government spending in the IS-LM curve version of the Keynesian model with the effect of the same shift within the classical model. (4)

Answer 1

Increase in government spending leads to increase in output in both the model but Keynesian model will have effect in short run and classical will have long run effects. Once Keynesian model with IS-LM curve will cover the recessionary gap same time classical model will concentrate on long run solution of unemployment and gdp . Both the both concentrates in solving the problem of recession gap in short run and long run simultaneously.

Keynesian model:

 Classical model: