Money And Banking Presentation Oral Draft – Essay Example
MACRO & MICRO ECONOMICS The aggregate demand–aggregate supply (AD/AS) model explains the level of pricing andproduction from the link between cumulative supply and demand. The AD/AS is drawn from the general theory of Interest, Employment and money. This system has been applauded by numerous circles including Keynesian activists of interventionism and economists.
The AD/AS is utilized in the illustration of the Keynesian model in the world of commerce. Both curves vary differently depending on the circumstances experienced at the time. Their movement can be used to envisage repercussions of occurrences on the two variables: level of prices and the GDP the model is comparable to the Phillips Model for inflation, wage and unemployment. The AD curve favors the right in case of financial expansion. An upward swing in nominal money stock causes increased monetary stock at all price levels. The AS curve often gives an image of the labor force stability or instability. It indicates the output of each company at their varied projected levels of pricing.
The Keynesian aggregate supply curve illustrates how AS curve almost flattens out because the company or firm will deliver whichever quantity of merchandise demanded at a certain price level during pecuniary recession. This is so because following high unemployment, labor supply is unlimited at the existing wage hence stagnating in the total cost of production. The company’s average cost of production remains relatively unchanged while output increases, which forms the basis for Keynesians’ support for government intervention. Total volume of output in a market can wane without a reduction in pricing. This together with Keynesian model of non reduction in wages elucidate the need for government intervention since wages cannot adjust south for AS to drift in a manner to bolster total productivity, the government must therefore muscle in.
Dutt, Amitava K and Peter Skott. "Keynesian Theory and the AD-AS Framework: A Reconsideration,. Ed. Department of Economics. Amherst.University of Massachusetts, 2005.