- Created by: Sin Heng
- Created on: 29-01-20 13:59
What is the difference in the results of a rise in AD in the LRAS Classical model and the LRAS Keynesian model?
In the Classical model, a rise (shift) in AD would see an increase in price but there would be no change in the level of output. Whereas in the Keynesian model, there are 3 different outcomes. If the economy is at full level of employment then when the AD shifts outwards, there will only be an inflationary rise in price. If the economy is below the level of full employment (in a recession) then when AD rises, only the level of output rises. If the economy is slightly below full employment (AD meets LRAS at the curve), then an increase in AD would increase both price and output.
In the SRAS, when can there be a change in both real output and price level?
When there is a rise or fall in AD. The output and price level would increase/ decrease with it.
When there is a rise or fall in the SRAS. When SRAS…