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Q. Is Consumption depend on GDP in the cross model?
Aggregate demand
The consumption function
Consumption C(Y) depends positively on GDP in the cross model
Remember that in classical model, consumption relies on the real interest rate. In cross model it relies on GDP. Note that it isn't possible to include r in the cross model as it is fixed. Though, we need to justify the dependence of C on Y.
Q. AS-AD model with inflation? When we have inflation, both AD curve and AS curve will be gliding. 'The glide rate' of the AD curve is given by Π M whereas it is Π W that appli
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