Which of the following is a basic difference between the classical model and the Keynesian model in which the Keynesian short-run aggregate supply curve exists?
A) The classical model assumes that the long run aggregate supply curve is vertical, while the Keynesian model assumes the long run aggregate supply curve is horizontal.
B) The classical model assumes that the position of the long run aggregate supply curve is determined by full employment, while the Keynesian model assumes that the long run aggregate supply curve will be to the left of full employment.
C) The classical model assumes that the level of real GDP is supply determined, while the Keynesian model assumes that it is demand determined.
D) The classical model uses real GDP, while the Keynesian model uses nominal GDP.

Question

Quizplus · Accepted Answer

The classical model posits that the level of real GDP is determined by supply-side factors (such as productivity and labor supply), assuming that markets, including labor markets, always clear through price and wage adjustments. The Keynesian model, on the other hand, suggests that in the short run, the level of real GDP is determined by demand-side factors (such as consumption, investment, and government spending), highlighting that prices and wages can be sticky, leading to periods of unemployment and underutilized resources.

Which of the Following Is a Basic Difference Between the Classical