An important difference between the classical model and the Keynesian model is that the;

1 answer:

6 0

Answer: Keynesian's believe that the aggregate supply curve is fairly flat at low levels of production or output, the reason for this is that in the short run when level output is low and unemployment is high, producers will not need to pay high labor costs to increase production and other input costs will also be low. During an economic depression firms will can increase their output without increasing prices. Also production can be increased without extra costs such as machines etc as there will be idle machines.

Explanation: The classical model assumes prices are flexible and follow the market, so that the aggregate supply curve is Vertical and the economy is always at full employment or at its potential. This means that whenever output increases input costs and prices will increase and will be flexible downwards as well.

The Keynesian model indicates that the economy will find an equilibrium however the economy will not always at full employment

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