Transcript Keynes and the Classics Scarth Chapter 3 – Arianto A. Patunru

Makroekonomi 2, S1, FEUI, 2009 – Arianto A. Patunru
Keynes and the Classics
Scarth Chapter 3
AD and AS system
• IS relationship
Y = C[(1 – k)Y + I(i) + G
(1)
• LM relationship
M/P = L(Y,i)
(2)
• Production function
Y = F(N,K)
(3)
• Labor demand function
W = PFN(N,K)
(4)
• Labor supply function
W(1 – k) = PS(N)
(5)
Sloped of AD and AS
dP LY  LI [(1  CY d (1  k )] / I I

0
2
dY
M P
AD
dP  PFNN

0
2
dY
FN
AS
AD schedule
AS schedule
The Classical model
ΔAD & excess labor supply
ΔAD & unfulfilled vacancies
Generalized disequilibrium
Falling demand with fixed W and P