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Hayek Classical Model

Hayek Classical Model. The easier way to view the world. The classical model. PRICE LEVEL. LRAS. SRAS. P. AT this point there is zero unemployment. AD. REAL OUTPUT. YF. An Increase in Long-run Aggregate supply. SRAS. LRAS. LRAS1. PRICE LEVEL. SRAS1. P. P1. AD. REAL OUTPUT.

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Hayek Classical Model

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  1. Hayek Classical Model The easier way to view the world

  2. The classical model PRICE LEVEL LRAS SRAS P AT this point there is zero unemployment AD REAL OUTPUT YF

  3. An Increase in Long-run Aggregate supply SRAS LRAS LRAS1 PRICE LEVEL SRAS1 P P1 AD REAL OUTPUT YF1 YF Shift in LRAS •Economic growth •Migration •Technology •Education •Evolution

  4. A decrease in long-run aggregate supply SRAS1 LRAS1 LRAS PRICE LEVEL SRAS P1 P AD REAL OUTPUT YF1 YF Decrease in LRAS •Long term unemployment causing lost of skills •Wars •Natural disasters

  5. A increase in aggregate Demand LRAS PRICE LEVEL SRAS1 SRAS P2 P1 P AD1 AD REAL OUTPUT YF YF1 Increase AD •Increase in consumer spending •Increase in investment by firms •Increase in government spending

  6. An Decrease in aggregate DEMAND LRAS PRICE LEVEL SRAS SRAS1 P P2 P3 AD AD1 REAL OUTPUT YF YF1 • Decrease in AD • Price falls because more unemployment: • wage go down thus, more competition for jobs • price of goods and services go down

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