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The Keynesian perspective says that AD is unstable and changes in AD can cause either recession...

The Keynesian perspective says that AD is unstable and changes in AD can cause either recession and unemployment or inflation. These shifts of the AD curve demonstrate problems within our economy that can be modified through government intervention.

Neoclassical economists say that the economy is self-correcting. If there is a leftward shift (decrease) of AD, over time both prices and wages will also decrease allowing the economy to find a new equilibrium. They say there is no need for government intervention.

The key policy question for neoclassicals is how to promote growth of potential GDP. As a neoclassical, what would you want to see our government do to promote growth?

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Expert Solution

Rahul Sunny answered 2 years ago
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