Microsoft Word - Final Exam.docx

Part A) What is ‘Classical Dichotomy'? What is the neutrality of money? Are the two related? If so,how are they related? What are the major economic and political conclusions of ‘Classical Dichotomy'?

Part B) Do Classical Dichotomy and Neutrality of money exist in the Keynesian model? (Use the AD-AS or IS-LM models for the purpose of analysis). How do the economic and political conclusions of the Keynesian model differ from those of the classical model on account of this?

Explain your answer in detail.

[Hint: Explain the major changes in assumptions about the labour and money markets that lead to the lack of existence of the classical dichotomy and money neutrality in the Keynesian model and how they relate to economic and political conclusions of the Keynesian model]