I have read something about the short and long run aggregate supplies, but I don't know what the main difference is about these two models. Does someone know the difference(s) between these two models?


1 Answer 1


In the classical model, aggregate supply curve is vertical (price level on the y axis), meaning that output is fixed, constrained by technology and inputs. Prices are flexible. So that if the demand curve changes, the effect will be entirely on price level and not on output.

In the keynesian model, aggregate supply curve is horizontal at some price level. If demand changes, the effect will be entirely on output.

So the main difference lies on price flexibility and the power of increasing output through aggregate demand stimulus.


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