Question

Does the graph above reflect a Classical Model or a Keynesian Model? How do you know? What is happening in this economy in the short run?

Answer 1

Yes, the graph tells about the school of economics and if the given model is keynesian or classical. In a keynesian model the supply curve is flat and horizontal till the point it reaches the full employment, it is a short run model, in the classical economy the economy is vertical line at the full employment level. there is no short run in the classical model and the economy works in the long run always.

It is the shape of the aggregate supply curve that tells about the moldel of the economy.