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Keynesian model vs classical model
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Can someone explain this to me please? I am absolutely baffled by some things in particular such as:
What does Keynes idea of 'sticky wages' actually show?
Why does he think in the long run we can still be below the full employment level?
What does Keynes idea of 'sticky wages' actually show?
Why does he think in the long run we can still be below the full employment level?
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jpt4749
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From my point of understanding
Classical approach assumes that aggregate supply curve is vertical so in the long run we always stick to the trend GDP and hence any deviation from it will be corrected back to the initial equilibrium with the change in the price level
Keynesian approach assumes that aggregate supply curve is flat or horizontal meaning prices & wages are sticky which take much longer to adjust than output or quantity. As such the deviation from potential GDP can occur anytime due to the cyclical trend creating economic fluctuations and consequent adjustments.
Please correct me if I’m mistaken though ^_^
Classical approach assumes that aggregate supply curve is vertical so in the long run we always stick to the trend GDP and hence any deviation from it will be corrected back to the initial equilibrium with the change in the price level
Keynesian approach assumes that aggregate supply curve is flat or horizontal meaning prices & wages are sticky which take much longer to adjust than output or quantity. As such the deviation from potential GDP can occur anytime due to the cyclical trend creating economic fluctuations and consequent adjustments.
Please correct me if I’m mistaken though ^_^
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#3
(Original post by Nathan9087)
From my point of understanding
Classical approach assumes that aggregate supply curve is vertical so in the long run we always stick to the trend GDP and hence any deviation from it will be corrected back to the initial equilibrium with the change in the price level
Keynesian approach assumes that aggregate supply curve is flat or horizontal meaning prices & wages are sticky which take much longer to adjust than output or quantity. As such the deviation from potential GDP can occur anytime due to the cyclical trend creating economic fluctuations and consequent adjustments.
Please correct me if I’m mistaken though ^_^
From my point of understanding
Classical approach assumes that aggregate supply curve is vertical so in the long run we always stick to the trend GDP and hence any deviation from it will be corrected back to the initial equilibrium with the change in the price level
Keynesian approach assumes that aggregate supply curve is flat or horizontal meaning prices & wages are sticky which take much longer to adjust than output or quantity. As such the deviation from potential GDP can occur anytime due to the cyclical trend creating economic fluctuations and consequent adjustments.
Please correct me if I’m mistaken though ^_^
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TylerDurden1
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