Classical and Keynesian Macro Analyses
Chapter 11
Classical and Keynesian Macro Analyses
Introduction
Among the many factors influencing the rate of GDP growth is the volume of business regulation. Concerns about terrorism have multiplied the amount of documentation that must accompany cargo arriving in U.S. ports. How does this affect real GDP?
Slide 11-2
Learning Objectives
Discuss the central assumptions of the classical model Describe the short-run determination of equilibrium GDP and the price level in the classical model Explain the circumstances under which the short-run aggregate supply curve may be either horizontal or upward-sloping
Learning Objectives
Understand what factors cause shifts in the short-run and long-run aggregate supply curves Evaluate the effects of aggregate demand and supply shocks on equilibrium real output in the short run Determine the causes of short-run variations in the inflation rate
Slide 11-4
Slide 11-3
1
Chapter Outline
The Classical Model Equilibrium in the Labor Market Keynesian Economics and the Keynesian Short-Run Aggregate Supply Curve Output Determination Using Aggregate Demand and Aggregate Supply
Chapter Outline
Determinants of Aggregate Supply Effects of a Weaker Dollar
Slide 11-5
Slide 11-6
Did You Know That...
Different approaches to economic analysis have different views of price flexibility? The Keynesian approach emphasizes the idea that prices of final goods and services may be slow to respond to higher input prices?
Slide 11-7
The Classical Model
The classical model was the first attempt to explain fluctuations in:
– – – – – – – Inflation Output Income Employment Consumption Saving Investment
Slide 11-8
2
The Classical Model
Assumptions of the classical model
– Pure competition exists – Wages and prices are flexible – People are motivated by self-interest – People cannot be fooled by money illusion
The Classical Model
Consequences of the assumptions
– Minimize the role of government
Classical and Keynesian Macro Analyses
Introduction
Among the many factors influencing the rate of GDP growth is the volume of business regulation. Concerns about terrorism have multiplied the amount of documentation that must accompany cargo arriving in U.S. ports. How does this affect real GDP?
Slide 11-2
Learning Objectives
Discuss the central assumptions of the classical model Describe the short-run determination of equilibrium GDP and the price level in the classical model Explain the circumstances under which the short-run aggregate supply curve may be either horizontal or upward-sloping
Learning Objectives
Understand what factors cause shifts in the short-run and long-run aggregate supply curves Evaluate the effects of aggregate demand and supply shocks on equilibrium real output in the short run Determine the causes of short-run variations in the inflation rate
Slide 11-4
Slide 11-3
1
Chapter Outline
The Classical Model Equilibrium in the Labor Market Keynesian Economics and the Keynesian Short-Run Aggregate Supply Curve Output Determination Using Aggregate Demand and Aggregate Supply
Chapter Outline
Determinants of Aggregate Supply Effects of a Weaker Dollar
Slide 11-5
Slide 11-6
Did You Know That...
Different approaches to economic analysis have different views of price flexibility? The Keynesian approach emphasizes the idea that prices of final goods and services may be slow to respond to higher input prices?
Slide 11-7
The Classical Model
The classical model was the first attempt to explain fluctuations in:
– – – – – – – Inflation Output Income Employment Consumption Saving Investment
Slide 11-8
2
The Classical Model
Assumptions of the classical model
– Pure competition exists – Wages and prices are flexible – People are motivated by self-interest – People cannot be fooled by money illusion
The Classical Model
Consequences of the assumptions
– Minimize the role of government