An important difference between the classical model and the Keynesian model is that the
a. Keynesians think that in the near run, the aggregate supply curve is horizontal.
b. The traditional model makes the assumption that prices are flexible, resulting in a vertical aggregate supply curve and a constant level of full employment.
c. The Keynesian model predicts that while the economy will eventually reach full employment, it won't always find an equilibrium.
The Classical Model describes the economy in the long run - where resources are fully employed and everyone is working. The Keynesian Model describes what happens during expansions and recessions, in the short run, when the economy is above or below its potential.
Keynesians focus on short-term problems. They see these issues as immediate concerns that government must deal with to assure the long-term growth of the economy. Classicists focus more on getting long-term results by letting the free market adjust to short-term problems.
The Classical model stresses the importance of limiting government intervention and striving to keep markets free of potential barriers to their efficient operation. Keynesians argue that the economy can be below full capacity for a considerable time due to imperfect markets.
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