Question

In the New Keynesian Macroeconomics business cycles are driven by demand shocks, while in the New Classical Macroeconomics they are driven by supply shocks. Explain this statement using your knowledge of the AD-AS model.

Answer 1

Solution:

In the New Keynesian Macroeconomics, there is an attention on request stuns. Along these lines, business cycles are produced as the descending slanting Promotion bend movements to one side and left. At the point when the Advertisement bend movements to one side, we have a positive interest stun and the economy enters a blast stage. When there is a negative interest stun and the Promotion bend movements to one side, the economy enters a contractionary business cycle stage. In the New Old style Macroeconomics, there is an attention on gracefully stuns. In this manner, business cycles are created as the upward-slanting AS bend movements to one side and left. At the point when the AS bend movements to one side, we have a positive gracefully stun and the economy enters a blast stage. When there is a negative flexibly stun and the AS bend movements to one side, the economy enters a contractionary business cycle stage.