Macro Economics 

    • The aggregate supply curve describes the combinations of output and the price level, to supply the given quantity of output. The amount of output that business firms are willing to supply depends on the prices they receive for their goods and the amount they have to pay for labor and other factors of production. Accordingly, the aggregate supply curve shows conditions in the factor markets, especially, the labor market, as well as the good market. From a historical standpoint it is very important to compare and contrast the views expressed by the classical economists and J M Keynes. The main reasons are that the analysis has different implications regarding a market economy's tendency to adjust to full employment and the relative effectiveness of monetary and fiscal measures.
    • According to classicals, the economy will always be at its full employment level of output. At the full employment level of output, any employment, which might exist, is voluntary and is referred to as the 'natural' rate of unemployment, because output cannot be raised above its current level even if the price level rises. There is no more labor available to produce any extra output. Thus, the aggregate supply curve will be vertical (i.e. perfectly price in elastic aggregate supply curve) at a level of output corresponding to full employment of the labor force.
    • This classical approach to analyzing economic behavior came under severe criticism due to its unrealistic assumptions of wage price flexibility and the existence of voluntary unemployment. In real world, all unemployment is certainly not voluntary. There are many who wish to work but cannot find work implying the existence of involuntary unemployment. J M Keynes and Keynesian economists disputed the classical assumptions and pointed out that a perfectly efficient 'wage price' flexibility is far from real world. Keynesian aggregate supply curve is based on the assumption that the wage does not change much or change at all when there is unemployment, and thus the unemployment can continue for sometime.