4) Explain the two main differences between the Classical and Keynesian theories of the business cycle?...

4) Explain the two main differences between the Classical and Keynesian theories of the business cycle?

8) A) What is GNP?

B) What is the relationship between GNP and NNP?

Solutions

Expert Solution

One of the difference between classical and keynesian theory is the assumption of wage and price flexibility. Classical theory believes that prices and wages are flexible in the short run so that economy adjust quickly by adjusting the prices and images to any economic shock. Keynesian theory assume that wages and prices are sticky in the short run. Due to this difference, short run aggregate supply curve is a horizontal line in keynesian theory and it is a vertical line in classical theory. Another difference is related to crowding out of private investment. There is complete crowding out in classical theory, and there is no crowding out in keynesian theory.

Gross National product is the final value of all the goods and services produced by the economy during the year which includes the domestic production as well as the net factor income from abroad.

gross national product and net National product are related to each other in the sense that net National product is gross National product from which depreciation or consumption of fixed capital has been deducted.

NNP = GNP - CFC

Rahul Sunny answered 10 months ago

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