Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not? Figure 1: Hayek's (Classical) AD-AS ModelThe Classical AS curvePriceLevelASp1ePAD1ADYfNational income(real GDP)Copyright: www.economicsonline.co.ukEconomics Online. (n.d.). Aggregate Demand. Retrieved fromhttp://economicsonline.co.uk/Managing_the economy/Aggregate_demand.html1.1. Hayek says that markets will heal themselves and that government should not intervene. Howdoes the AD-AS model reflect Hayek's idea that governments cannot increase real GDPbeyond the level that the free market economy is able to produce?ANSWER: The AD-AS model reflects Hayek's ideologies because the aggregate supply curveis vertical. If the government were to intervene, it wouldn't be able to change the curve becausethat would entail a change in the real GDP, which isn’t possible with government intervention.Also, if the country were to enter a recession, the economy would self-adjust and in the long runwork toward full employment.1.2. Do you believe that the Hayek's classical AD-AS model explain the factors that cause changes(shifts) in AS realistically? Why or why not?

1.2 The Hayek’s classical model illustrates the aggregate supply curve as a vertical straight line…

Answered: Do you believe that the Hayek’s…

Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 59CTQ: Review the problem in the Work It Out titled Interpreting the AD/AS Model. Like the information...

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

Question

Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?

Figure 1: Hayek's (Classical) AD-AS Model
The Classical AS curve
Price
Level
AS
p1
e
P
AD1
AD
Yf
National income
(real GDP)
Copyright: www.economicsonline.co.uk
Economics Online. (n.d.). Aggregate Demand. Retrieved from
http://economicsonline.co.uk/Managing_the economy/Aggregate_demand.html
1.1. Hayek says that markets will heal themselves and that government should not intervene. How
does the AD-AS model reflect Hayek's idea that governments cannot increase real GDP
beyond the level that the free market economy is able to produce?
ANSWER: The AD-AS model reflects Hayek's ideologies because the aggregate supply curve
is vertical. If the government were to intervene, it wouldn't be able to change the curve because
that would entail a change in the real GDP, which isn’t possible with government intervention.
Also, if the country were to enter a recession, the economy would self-adjust and in the long run
work toward full employment.
1.2. Do you believe that the Hayek's classical AD-AS model explain the factors that cause changes
(shifts) in AS realistically? Why or why not?

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