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Syllabus: Equilibrium in the Keynesian model

Syllabus: Explain, using the Keynesian AD/AS diagram, that the economy may be in equilibrium at any level of real output where AD intersects AS

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Important Points: The conclusions in terms of Government Macroeconomic Policy gives completely opposite advice:

Neoclassicals argue there is no role for Demand Stimulation Policies by Government at best they can only work in the Short Run. Supply Side policies (Long Run) are the key to Economic Growth and Employment.

John Baptiste Say (Say´s Law) `Supply Creates its own Demand´

argue the Economy can get stuck at equilibrium below Full Employment (ie with unemployment) because of rigidities (like sticky wages) and so Government Must Manage Demand (Short Run - Stimulus Policies).

Keynes `In the Long Run We Are All Dead´