Answered: The Classical AS curve Price Level P1 P…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter22: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 16P

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Attached: figure 1: Hayek’s (Classical) AD-AS Model

Question 1

Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP?

Question 2

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?

Question 3

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?

The Classical AS curve
Price
Level
P1
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
AS

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