Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 15, Problem 1E
To determine
To explain:
The dissimilarity between new and old Keynesian economics.
Expert Solution & Answer
Explanation of Solution
Old Keynesian theory states that, to increase the equilibrium
The figure below represents the Old Keynesian model where,
New Keynesian's economists believe that wages and prices are not flexible in the shortrun. According to them, the aggregate supply curve is horizontal at lower levels of output and moves upwards with an increase in output. They also believed that the intervention of government is necessary to maintain the equilibrium Gross Domestic Product.
The figure below represents the New Keynesian's Model where the aggregate supply is horizontal at only lower level of outputs.
Economics Concept Introduction
Keynesian economics:
This theory of economics is about the aggregate demand in the economy and its impact on inflation. The theory explains that the change in aggregate demand is due to the anticipated or unanticipated factors. It has a direct impact in short run on the output and not on the prices. Keynesian believed that the intervention of government in the economy is necessary to stabilize the output.
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