ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The Classical Range
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The Intermediate Range
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The Keynesian Range
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None of the ranges are associated with low levels of output.
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Detailed explanation-1: -The aggregate supply curve shows the level of real GDP that the economy will produce at different possible price levels. (1) The Keynesian range of the curve is horizontal because neither the price level nor production costs will increase when there is substantial unemployment in the economy.
Detailed explanation-2: -The Keynesian aggregate supply curve is non-linear where the elasticity of aggregate supply is dependent in part on the level of spare productive capacity at different stages of a nation’s economic cycle.
Detailed explanation-3: -The Keynesian model shows the aggregate supply curve is upward sloping because wages and prices are less flexible in the short-run. Under this model, the economy is more likely to be below the full employment level, which means that firms can hire new employees and increase production without raising wages or prices.
Detailed explanation-4: -Keynes’ Law states that demand creates its own supply; changes in aggregate demand cause changes in real GDP and employment. The Keynesian zone occurs at the left of the SRAS curve where it is fairly flat, so movements in aggregate demand will affect output but have little effect on the price level.