Question

What is the best explanation for the slope of the keynesian zone of the aggregate supply curve?

Answer 1

An increase in aggregate demand when the economy is below potential output increases real output and has little or no effect on price levels.

The Keynesian aggregate supply curve shows that the AS curve is fairly flat. This means that during economic downturns, firms supply the quantity of goods demanded at a particular price level.

The Keynesian zone is on the left side of his SRAS curve and is fairly flat, so movements in aggregate demand affect production but have little effect on price levels.

The Keynesian model suggests that in the short term less flexible wages and prices will push the aggregate supply curve upward. This model makes it more likely that the economy will fall below the full employment level. This means companies can hire new workers and increase production without raising wages or prices.

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