Question

1. Briefly describe WHY the Classical Economists believed there was no point in stimulating the Aggregate Demand curve to achieve Economic Growth?

2. Briefly describe WHY the Keynesian Economists believed there was no point in stimulating the Aggregate Supply curve to achieve Economic Growth?

3. In the Modern Macroeconomic Synthesis, both matter: Why is this the case?

4. Given the Federal Government and Provincial Government responses to this Time of Pandemic, briefly explain at least ONE POLICY that would IMPACT EACH of the Aggregate Demand, AD curve AND the Short-Run Aggregate Supply, AS curve

Answer 1

Answer 1-The Classical economist like Adam Smith, Ricardo, Malthus etc believed in a free market laisez faire economy without any government intervention. They believed that the economy is always in full employment equilibrium level. Any movement away from the equilibrium price and output will be automatically corrected. They believed in the self- correcting mechanism of the economy. They believed in the importance of the market forces of demand and supply. An economy will produce that much of goods and services which people demand. In case any mismatch arised between demand and supply, the economy will be automatically corrected by an 'invisible hand'. Since, they believed in the market mechanism and invisible hand, they did not find any role.of government in stimulating the aeconomy which is aready in full employment level. Hence, the did not give believe that aggregate demand needs to be stimulated.