lesson 18- keynsian AS

Question 1

what do classical economists think

Answer 1

the market will always adjust to equilibrium in the long term
-when an economy is in disequilibrium markets are always assumed to clear, so prices adjust to ensure AS = AD

Question 2

what do keynesian economists argue

Answer 2

there have been points where the market hasnt cleared for long periods of time, and have a different view of LRAS
-Keynes- ‘‘in the long run we are all dead’’. there is little point looking at the LRAS curve if it takes a generation to return to equilibrium following demand or supply side shocks

Question 3

draw the keynesian LRAS curve

Answer 3

https://www.google.com/imgres?q=keynesian%20curve%20LRAS&imgurl=https%3A%2F%2Fwww.economicsonline.co.uk%2Fcontent%2Fimages%2F2023%2F01%2FLRAS-1.webp&imgrefurl=https%3A%2F%2Fwww.economicsonline.co.uk%2Fdefinitions%2Fdefinitions-long-run-aggregate-supply.html%2F&docid=1UtD8Nq8C-tG7M&tbnid=274KJoJeJV53mM&vet=12ahUKEwiO3Mntt_CMAxXFdUEAHXGELnAQM3oECG0QAA..i&w=815&h=696&hcb=2&ved=2ahUKEwiO3Mntt_CMAxXFdUEAHXGELnAQM3oECG0QAA

-the idea of LR and SR is not true, and wages being variable is crazy
-AS is determined by spare capacity in the economy
-at Yfe, production cant sustainably increase

-keynes argued workers can resist reduced wages, so output can increase without inflation

Question 4

draw a shift in the keynesians curve

Answer 4

https://www.google.com/imgres?q=keynesian%20LRAS%20shifting&imgurl=http%3A%2F%2Fibeconomist.com%2Fwp-content%2Fuploads%2F2015%2F08%2FAS-Key-3.png&imgrefurl=http%3A%2F%2Fibeconomist.com%2Frevision%2F2-2-aggregate-supply%2F&docid=O4J8OJkUmHhH1M&tbnid=RL1uNQgs2bT6EM&vet=12ahUKEwiXodDX1fCMAxWdbEEAHQLIJo4QM3oECFMQAA..i&w=353&h=262&hcb=2&ved=2ahUKEwiXodDX1fCMAxWdbEEAHQLIJo4QM3oECFMQAA