00:01
So if i was going to try to boil down 100 plus years of economic history into a brief takeaway, i would summarize this question by saying classicals believe that prices and as a subset of prices, wages adjust quickly.
00:16
And therefore, demand is not so important and supply is very important.
00:20
Kensians believe that price adjustment is really slow and therefore they believe that demand matters a lot.
00:28
So if i was going to try to, maybe you've seen a supply, aggregate demand, aggregate supply diagram, right? and sorry, price on the vertical axis, output on the bottom.
00:41
We have an aggregate demand curve.
00:46
For classicals, i would draw my aggregate supply curve something like this, right? and so i would say, look, let's suppose this intersection here is potential outputs right here.
00:59
Y of r.
01:01
And so in if aggregate supply being vertical suggests that demand shocks are not going to meaningfully disrupt things, right? so if i shift demand out, you know, maybe we get, oh, sorry, that's ad, maybe we get like a tiny boom, but you see that the steepness of the aggregate supply curve means that you're not getting big swings and output, right? when aggregate supply is very, very steep, you don't get big swings and output because that aggregate supply curve keeps you very close to potential output, right? as long as you're thinking about a demand shock, right? and they would also suspect that this aggregate supply curve will get you back to equilibrium pretty quickly, because, again, firms will change the behavior, right? this accurate supply curve encapsulates the behavior of firms.
01:56
So firms are very flexible and prices and wages and business models are very flexible than that high -supply curve.
02:02
Not only is it close to vertical to start, it can move very quickly, right? and so from a classical perspective, demand shocks don't really matter that much because supply can adjust very, very quickly to demand shocks and supply can adjust very, very quickly because prices and businesses and wages are very flexible, right? conversely, it does mean that supplied matters a whole lot, right? if you have, say, so if demand doesn't matter, the shocks that do matter are supply shocks, right? so classical is worried more about things like agricultural weather, which destroyed crops and stuff like that.
02:36
And of course, when the time they were writing, things like that were more important.
02:41
Kensians would say that actually to a kansian, i better draw this in green, maybe that you get a really, really flat.
02:54
Oh, sorry, that should be upward sloping, of course.
02:57
I was just trying not to draw it over any.
03:02
I'm going to take that green line out too.
03:05
Try and draw it over any nomenclature.
03:06
Kensians would believe that aggregate supply is very, very flat...