Question

An important difference between the Classical Model and the Keynesian Model is that the a. Keynesians believe that the aggregate supply curve is ▼ horizontal in the short run vertical always downward sloping . b. The Classical model assumes prices ▼ are flexible are sticky so that the aggregate supply curve is ▼ vertical upward sloping horizontal and the economy is always ▼ at full employment in a recession in flux at a constant price level . c. The Keynesian model indicates that the economy will find an equilibrium however the economy will not always ▼ reach full employment expereince inflation in the short run .

Answer 1

Answer: All of the above

Step-by-step explanation:

The Classical School of Thought says that the economy is at full employment all the time and that wages and prices are flexible. The Keynesian School of Thought says that the economy can be above or below its full employment level and that wages and prices can get stuck.

There are a lot of views of these Schools of Thought In the classical model, aggregate supply curve is vertical (price level on the y-axis and quantity on the x-axis), meaning that output is fixed i.e constant, constrained by technology and inputs.

Prices are flexible. So that if the demand curve changes, the impact will be entirely on price level and not on output.

In the Keynesian School of Thought, aggregate supply curve is horizontal at some price level. If demand changes, the effect will be entirely on output.

So the main difference lies on price flexibility and the power of increasing output through aggregate demand stimulus.