Which model examines the relationship between aggregate demand and short-run output?

The Keynesian Model is focused on the relationship between aggregate demand and short-run output. This framework asserts that changes in aggregate demand can influence output and employment levels in the short run, often leading to fluctuations in economic activity. According to Keynesian economics, during periods of decreased demand, such as recessions, businesses will produce less, resulting in lower output and higher unemployment. In this view, government intervention—through fiscal policy measures like increased spending and tax cuts—is essential to stimulate demand and improve economic performance.

This model emphasizes the importance of demand-side factors rather than emphasizing only supply-side considerations, which is often the focus of other economic models. The Keynesian approach supports the idea that the economy can be below its potential output for extended periods, and thus, aggregate demand can play a significant role in driving short-run output variations.