Question

List and briefly discuss the key components of the neoclassical approach to the AD/AS model.

List and briefly discuss the key components of the neoclassical approach to the AD/AS model.

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Answer #1

There are two theories regarding the long run supply curve 1) Keynesian theory and 2) Neoclassical

2) The neoclassical economics believes that in long-run aggregate supply curve is verticle when resource productivity increase right shift of the supply curve indicating the supply curve are independent of the price and price level are flexible

The LRAD-LRAS determines the equilibrium in the economy and When the economy is in full employment situation increasing the price results inflationary situation in the economy and supply curve moves to right side indicating productivity of the resource increased.

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