3.2.7—Comparing macroeconomic models

A useful model comparison starts with assumptions, not with memorised curve shapes.

Classical models assume flexible wages and self-correction toward potential output. Keynesian models allow sticky wages, idle capacity and demand-led persistence. Their policy conclusions therefore differ for the same shock.

After a fall in AD, the classical model predicts a temporary recessionary gap that closes through lower costs; the Keynesian model predicts that weak confidence can keep output below potential and may justify demand support.

State the assumption, trace the predicted adjustment and name the evidence or context that would make that prediction more plausible.

Neither model is a universal law. A prediction is conditional on its time horizon, institutions, spare capacity and wage behaviour.