What is the key difference between the Keynsian and the Neo-Classical schools of thought? Explain using a diagram.
The Neo-Classical school of thought is built under the assumption of prices being flexible in both directions(upwards or downwards). On the other hand, Keynes suggested that wages are inflexible downwards, resulting to 'sticky prices'. This results in a flat and then vertical Aggregate Supply curve, with a small upward sloping section in between them. This is different to the normal upward sloping Neo-Classical AS curve.
GM
Related Economics IB answers
All answers ▸What's the difference between a 10-marker and a 15-marker and how would I go about answering these?
What is the difference between demand and aggregate demand?
What is the Short Run Aggregate Supply curve and why is it upwards sloping?
Explain the difference between expansionary and contractionary fiscal policies