For the essay, you are welcome to modify the thesis (or literary device) I’m going to suggest next, but regardless of what means you use to present the material (i.e. if you choose an alternative thesis), be sure to include the specifics for each essay as detailed below. The suggested topic is as follows: Assume you are a Keynesian economist and vehemently disagree with the Classical position that the Aggregate Supply Curve is vertical. Make your case.
Specifics for Essay: Aggregate Supply (and Demand)
1. Your essay should include a discussion of why the Keynesian (i.e. upward-sloping) Aggregate Supply (hereafter, AS) slopes upward. Specifically, what assumptions are made that differ from the Classical AS (which, as you know, is vertical). Include a few sentences that suggest what difference it makes if our AS is vertical or upward sloping. For example, you could show/suggest how the impact of AD changes depending on whether the AS is vertical or upward sloping.
2. You want to include the derivation of the upward-sloping AS, where W is fixed. (Note that you w/could also show an upward-sloping with a variable W, but please assume W is fixed, particularly in the downward direction.) Your derivation should include three diagrams: a. the labor market, b. the aggregate production function, and c. AS. To undertake this derivation, assume that P rises. Be sure to label carefully and explain the steps associated with your derivation. At this point, do not include Aggregate Demand (AD).
3. Next, start a new section – and diagram that includes the upward sloping AS and AD. Find a news story – past or present – that suggests an event/scenario that would shift AS. Include at least one specific reference (which could be a quote) from the story that clearly suggests an AS shift. Illustrate and explain the shift on your diagram. Given the shift you’ve found and showed, what is/was the outcome for the economy? NOTE: the next, final section asks you to discuss a shift in AS via “supply side economics (SSE),” so do not use a news story related to SSE. Be sure to include a full citation of your news story.
4. The final section of your AS essay should include a discussion of whether policy, such as SSE, would be expected to affect AS. This section is primarily where you will articulate your opinion on whether policies such as lower taxes and deregulation can impact short run productivity and thus the AS curve.
5. Expected length: three – four pages, including your diagrams.