Traditional Culture Encyclopedia - Traditional culture - Why is the total supply curve divided into three types: classical, Keynesian and conventional?
Why is the total supply curve divided into three types: classical, Keynesian and conventional?
Classical aggregate supply curve: Assuming that wages are completely elastic, prices and monetary wages are flexible. The total supply curve is a vertical line on the level of potential output or full employment. The policy of increasing demand can only lead to price increase, but not change output.
Keynes's total supply curve: it holds that money wages and prices are rigid. In the short term, due to the short time, wages and prices do not have enough time to adjust. It shows that when the economy is less than the level of full employment, the policy of increasing demand can achieve full employment.
Conventional aggregate supply curve: located between the classical and Keynesian aggregate supply curves, it is a line inclined to the upper right. It reflects the situation that the speed of price and wage adjustment is between classical and Keynesian situations.
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