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IB Economics

IB Economics . Macroeconomic Models The New Classical Perspective. What is the New Classical perspective?. The New Classical LRAS?. New Classical (Free Market) LRAS . LRAS perfectly inelastic at Full Employment Level of Output (Ymax)

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IB Economics

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  1. IB Economics Macroeconomic Models The New Classical Perspective

  2. What is the New Classical perspective?

  3. The New Classical LRAS?

  4. New Classical (Free Market) LRAS LRAS perfectly inelastic at Full Employment Level of Output (Ymax) Potential Output = Quantity and Quality of FOPs not Price

  5. Why is the LRAS vertical?

  6. Implications of the New Classical LRAS a ?

  7. Long-run equilibrium

  8. Long-run equilibrium and Decline in AD

  9. Return to Long-run equilibrium

  10. Long-run equilibrium

  11. Long-run equilibrium and Increase in AD

  12. Return to Long-run equilibrium

  13. What is the Keynesian perspective?

  14. The Keynesian SR/LRAS?

  15. Keynesian SR/LRAS Segment 1: Spare capacity in the economy, LRAS perfectly elastic Segment 2: Spare capacity utilized, FOPs’ prices rise Segment 3: Economy at maximum capacity LRAS perfectly inelastic

  16. Keynesian SR/LRAS • Keynes argued that as there is nothing inherent in the economy to move the SR into the LR, then SRAS = LRAS NB • In diagrams taking a Keynesian you may see the AS curve labeled Keynesian AS or simply LRAS as long as the diagram’s title makes clear which perspective is being adopted

  17. Implications of the Keynesian SR/LRAS

  18. Recessionary Gap in the Keynesian Perspective LRAS

  19. Inflationary Gap in the Keynesian Perspective

  20. Full Employment Equilibrium in the Keynesian Perspective

  21. Economic Growth: Improved Quantity & Quality of FOPs

  22. Economic Growth: New Classical Perspective

  23. Economic Growth: Keynesian Perspective

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