How does the Keynesian aggregative supply curve differ from the classical one? Is one of these specifications more appropriate than the other? Explain, being careful to state the time horizon to which your answer applies
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How does the Keynesian aggregate supply curve differ from the classical one? Is one of these specifications more appropriate than the other? Explain, being careful to state the time horizon to which your answer applies.
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The aggregate supply curve explains the relationship between the total goods and services produced in an economy and the price levels. There are two extreme situations of the aggregate supply curve in the theory, that is, the classical aggregate supply curve and the Keynesian supply curve.
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Explanation:
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Other things remain the same, the production of goods and services made by firms at different possible price levels is Aggregate Supply. The theories of classical economists are based on full employment assumptions. Therefore, in full employment, the aggregate supply curve is a vertical straight line parallel to the y axis.
On the other hand, the Aggregate Supply curve at the time of depression is horizontal initially, and at the point of Full Employment, it is vertical. Fig. shows it. In the horizontal area, along with the increase in Aggregate Demand, the production also increases but the price remains constant. In the vertical Aggregate Supply curve, i.e. at Full Employment, with the increase in Aggregate Demand, production does not change, but price level increases.
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