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According to the Keynesian Cross model of income determination, what determines a nation’s real aggregate income?...

According to the Keynesian Cross model of income determination, what determines a nation’s real aggregate income? According to the classical model of income determination (ch. 3), what determines a nation’s real aggregate income? What accounts for the different answers given by the two models?

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According to Keynesian cross model income is determined by aggregate spending or demand which is composed of consumption spending, investment, government spending and net exports.

According to classical model income is determined largely by labour market. Wage rate in labour market determines number of workers and hence equilibrium output that could be produced with that level of labour.

Both models differ because of the assumption made by classical economists that Prices and wages are flexible. Any change in aggregate demand will be reflected by changes in price and wages. Keynes rejected this assumption and came up with the conclusion that price and wages are rigid in short run.

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