Explain why the equilibrium level of output (GDP) in the Keynesian system can be determined at...
Explain why the equilibrium level of output (GDP) in the Keynesian system can be determined at the level of output that is below the full-employment level output whereas the equilibrium level of output in the classical system is determined at the full-employment level of output?
Homework Answers
This because Keynesian model assumes that aggregate supply is flat which means that the interaction of AD and AS occurs at the Keynesian range. This results in an equilibrium level of GDP which is less than full employment.
On the other side, Classical model assumes that AS is vertical. This implies that AD intersects with AS when economy is at its full employment level. The resultant output is also the full employment level of output since economy always maintains the same.
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(You must show all steps of your calculations to get credit
for each item of this question; otherwise, you will be deducted
marks)
ANSWER THE FOLLOWING QUESTIONS BASED ON THE KEYNESIAN
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consumer demand, capital, labor, and technology);
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the full-employment level, decrease to a new equilibrium)
if the aggregate demand curve shifts to the right.
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QUESTION 3: KEYNESIAN MODEL (7 POINTS)
(You must show all steps of your calculations to get credit
for each item of this question; otherwise, you will be deducted
marks)
ANSWER THE FOLLOWING QUESTIONS BASED ON THE KEYNESIAN
ECONOMY DESCRIBED IN THE TABLE BELOW. ALL FIGURES ARE IN $
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(2 points) A. Fill in the blanks in this table, making
the usual assumptions presented in the Keynesian theory (Chapter
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