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- PL LRAS PL LRAS
Classical view of LRAS Keynesian View of LRAS
The classical view of aggregate supply is inelastic and it has long-term implications. The economic perspective suggests that real GDP is determined by factors on the supply side, including the capital, investment, and labor productivity. Classical economists argue that in the long-run, an increase in the aggregate demand that is faster than the growth in aggregate supply will cause inflation and not increase the real GDP. The Keynesian view of aggregate supply is distinct. Keynesians highlight that the economy can function below full capacity for various reasons, such as sticky downwards wages, a paradox of thrift, and negative multiplier effect (Butters & Asarta (with Switzer, D. M.), 2019). They provide greater emphasis on the purpose of aggregate demand in overcoming and causing recession.
- The differences in perspectives on aggregate supply influence how the two economist groups believe in fiscal policy because classical economists assume that individuals are rational and not subject to huge changes in confidence, while Keynesians argue that in hard financial times, the confidence of consumers and business persons can fade causing a significant fall in investment and demand. The decline in confidence can lead to a rapid increase in savings and a fall in investment, and can last for a prolonged amount of time if the government does not intervene using a policy (Butters & Asarta (with Switzer, D. M.), 2019). Consequentially, classical economists call for the use of laissez fare since there is no need for the government to manage the economy, while the Keynesian model advocates for government intervention through the fiscal and monetary policies.
Money is anything that acts as a unit of account, store of value, and medium of exchange. As a medium of exchange, money is used to establish value during the exchange of services and goods. People can use money to sell and buy items from one another. As a store of value, it is utilized to keep value instead of using it during transactions...................GET A PLAGIARISM FREE COPY