Please use complete sentences when asked to \'descrbe\'; if you are unsure about
ID: 2439438 • Letter: P
Question
Please use complete sentences when asked to 'descrbe'; if you are unsure about a word's spelling please double-check If you cite directly from text please use quotation marks (single or double is fine) and include the page number. If from Carter's lecture notes then please indicate and include date if possible. Label all axes and idenctify all units. Plcase use a straight-edge in making graphs Neatness and demonstrable effort (or lack thereof) counts! 1. Explain the difference in vision of the Classical macrocconomists and the Keynesian macrocconomists 2. What is the space of classical aggregate equilibrium and how does it relate to the complete lassical model? Be sure to show the graph(s) 3. Describe the three curves that describe the AD- AS model and show long run aggregate equilibrium in a graph 4. Describe and show the AD curve. Include the reasons it slopes downward 5. Explain the counteracting forces that act against the reasons for a downward sloping AD curve. 6. Describe and show the shift factors for the AD curve. Show how each relate to both increases and a decreases in AD 7. Describe and show the SAS curve. Why is it upward sloping? Be sure to explain the two different kind of markets.Explanation / Answer
2.
The basic concept of the Classical model is aggregate production function where the output is expressed as a function of factors of production mainly labor and capital are considered for a simple model analysis. In the short run, capital and technology are constant. The theory assumes that the level of employment would be determined by the forces of demand and supply of labor in the market. The firms producing the output are under perfect competition and hire workers till their marginal revenue product equals the marginal cost of production which is also the money wage paid to the labor. The condition can also be expressed as the marginal product of labor equals real wage which means that labor demand is inversely related to real wage.
5.
Aggregate demand curve depicts how the change in price level changes aggregate expenditure on goods and services in an economy. It is downward sloping because of interest rate effect and money wealth effect .The keynesian aggregate demand curve is based on two assumptions about the behaviour of federal reserve; it takes responsiblility in maintaing stable output and in the long run keep inflation at low levels. If wealth effect .i.e. the effect of consumption spending due to increase in aggregate price on purchasing power of consumer's asset and interest rate effect when investment spending is affected by change in price level.doesnot lead to a downward sloping aggegate demand. In particular goods market like giffen good when income effect is greater than substitution effect then the realtionship between price and demand is positive.