ECONOMICS
AGGREGATE SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Yes, I understand this from the notes
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No, I don’t understand this from the notes
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No, I don’t understand this, as I have not read the notes
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None of the above
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Detailed explanation-1: -The Keynesian AS curve is perfectly elastic when there is substantial spare capacity but becomes progressively more inelastic as spare capacity diminishes. It is actually perfectly inelastic at the full employment level when there is no spare capacity remaining.
Detailed explanation-2: -The Keynesian LRAS In the diagram, the LRAS is perfectly elastic (horizontal) if the economy has high unemployment of resources (before Y1). More output can be produced without an increase in costs of production and the price level, P1. At low output, firms can attract more resources without bidding up their prices.
Detailed explanation-3: -Keynesian long run aggregate supply curve Keynesians believe that at low levels of output and employment, there would be spare capacity in the economy which would enable firms to increase their output without increasing the cost per unit produced. Here the LRAS curve will be horizontal.
Detailed explanation-4: -Notice that the long-run aggregate supply is perfectly inelastic because it has no response to changes in price. That means that in the long run, regardless of the price level, the quantity of output would be fixed.