Saturday, April 13, 2013

Compare and contrast the short-run and long-run aggregate supply (AS) curves for both classical and Keynesian models. Include in your explanation why the AS curves look different in the two different theories.

AS (aggregate supply) curves look at the real output of a country over a given period of time. This would look at all of the goods and services put out by a country's economy, including consumer and capital goods, public and merit goods, and export goods.
Under the classic model, the belief is that the economy will adjust over time based on supply and demand. It also assumes that all people who are willing to work are employed.
Under the Keynesian model, it is assumed that not everyone who is able to work is employed. In other words, it is assumed that the economy is not always working at its full potential.
Because of these differences, the classical model is best for looking at the long-run AS curves, because it looks at when the economy is functioning at its full potential and all resources are being used. The Keynesian model, on the other hand, is good for looking at short-term recessions when the economy is not being used to its full potential.

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