Chapter 11 Classic and Keynesian Economic Anaylses

In the Keynesian model in which SRAS exists, what determines real GDP?

Aggregate demand

What did Keynes argue about capitalism?

It did not always lead to full employment

Why is the SRAS curve positively sloped?

Some price adjustments take place

What is the equilibrating force in the credit market according to classical model?

The interest rate

In the classical view, if desired saving exceeds desired investment, then...?

The interest rate would decline

What is the LRAS curve in the classical model?

The level of real GDP corresponding to the natural rate of unemployment

What does the SRAS represent the relationship between?

The price level and real GDP without full adjustment or full information

According to Keynes, wages are inflexible because..?

Unions and long term contracts

What is demand-pull inflation?

When aggregate demand shifts to the right, but Aggregate supply stays the same