3. What is the difference between the Keynesian aggregate supply curve and the Classical supply curve?...

3. What is the difference between the Keynesian aggregate supply curve and the Classical supply curve? Why do they differ in shape?

Expert Solution

Keynesian aggregate supply curve vs classical supply curve

Keynesian aggregate supply:

1. Graphical representation between real production and price-level.

2. Aggregate supply curve contains two segments. One is more or less horizontal increasing price rigidity and is in a downward direction and as a reduction in real production while the other segment is more or less vertical indicating employment at high price levels.

3. The horizontal segment signifies a decline in demand leads to a decline in real production.

Classical supply curve:

it is also a relation between real production and price level.

1. Due to an instantaneous change in prices and wages, curve changes vertically in order to maintain the real wage.

2. Full employment is maintained regardless of the price level according to this curve.

3. If the price level rise or fall, the wages and prices adjust to ensure quantity demanded is equal to the quantity supplied.

Because of the above reasons, the curve differs.

Rahul Sunny answered 1 year ago

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