Q. Show the analysis of cross model?
We can divide our analysis of cross model into three sections:
- Aggregate demand. Aggregate demand is a major component of cross model. The main purpose of this section is to arrive at conclusion that aggregate demand depends on real GDP.
- Determination of GDP. GDP is determined very contrarily in the cross model compared to classical model.
- Labor market. One of the major points of the Keynesian model is to allow for unvoluntary unemployment. In classical model of the labor market, we are always in equilibrium and there is no unvoluntary unemployment.