**Short-run Aggregate Supply Curve Explanation** The graph represents the short-run aggregate supply (AS) curve, which shows different ranges of economic output and their respective impacts on price levels (P) and real GDP (Q). 1. **Keynesian Range**: - This is the horizontal section of the AS curve. - Here, the economy operates with excess capacity. Prices remain stable while output increases. - Reflects a situation where Keynesian macroeconomic policy is most effective. 2. **Intermediate Range**: - The curve begins to slope upward. - In this range, increasing output leads to rising price levels due to capacity constraints. - Here, Keynesian policy becomes less effective as inflation partly absorbs economic output gains. 3. **Classical or Monetarist Range**: - The vertical portion of the AS curve. - This indicates that the economy is at or near full capacity. - Additional demand only leads to higher prices, making Keynesian policies ineffective in increasing output. **Question 6 Analysis**: 06. Which of the following statements are FALSE? - (a) In the horizontal (Keynesian) range of the AS curve, Keynesian macroeconomic policy is very effective. - (b) In the intermediate range, Keynesian macroeconomic policy is less effective because its impact is partially dissipated by inflation. - (c) In the vertical (Monetarist or Classical) range, Keynesian policy is totally ineffective as an increase in Aggregate Demand produces only inflation. - (d) The AS curve can become vertical only when the economy is operating beyond full employment.
**Short-run Aggregate Supply Curve Explanation** The graph represents the short-run aggregate supply (AS) curve, which shows different ranges of economic output and their respective impacts on price levels (P) and real GDP (Q). 1. **Keynesian Range**: - This is the horizontal section of the AS curve. - Here, the economy operates with excess capacity. Prices remain stable while output increases. - Reflects a situation where Keynesian macroeconomic policy is most effective. 2. **Intermediate Range**: - The curve begins to slope upward. - In this range, increasing output leads to rising price levels due to capacity constraints. - Here, Keynesian policy becomes less effective as inflation partly absorbs economic output gains. 3. **Classical or Monetarist Range**: - The vertical portion of the AS curve. - This indicates that the economy is at or near full capacity. - Additional demand only leads to higher prices, making Keynesian policies ineffective in increasing output. **Question 6 Analysis**: 06. Which of the following statements are FALSE? - (a) In the horizontal (Keynesian) range of the AS curve, Keynesian macroeconomic policy is very effective. - (b) In the intermediate range, Keynesian macroeconomic policy is less effective because its impact is partially dissipated by inflation. - (c) In the vertical (Monetarist or Classical) range, Keynesian policy is totally ineffective as an increase in Aggregate Demand produces only inflation. - (d) The AS curve can become vertical only when the economy is operating beyond full employment.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:**Short-run Aggregate Supply Curve Explanation**
The graph represents the short-run aggregate supply (AS) curve, which shows different ranges of economic output and their respective impacts on price levels (P) and real GDP (Q).
1. **Keynesian Range**:
- This is the horizontal section of the AS curve.
- Here, the economy operates with excess capacity. Prices remain stable while output increases.
- Reflects a situation where Keynesian macroeconomic policy is most effective.
2. **Intermediate Range**:
- The curve begins to slope upward.
- In this range, increasing output leads to rising price levels due to capacity constraints.
- Here, Keynesian policy becomes less effective as inflation partly absorbs economic output gains.
3. **Classical or Monetarist Range**:
- The vertical portion of the AS curve.
- This indicates that the economy is at or near full capacity.
- Additional demand only leads to higher prices, making Keynesian policies ineffective in increasing output.
**Question 6 Analysis**:
06. Which of the following statements are FALSE?
- (a) In the horizontal (Keynesian) range of the AS curve, Keynesian macroeconomic policy is very effective.
- (b) In the intermediate range, Keynesian macroeconomic policy is less effective because its impact is partially dissipated by inflation.
- (c) In the vertical (Monetarist or Classical) range, Keynesian policy is totally ineffective as an increase in Aggregate Demand produces only inflation.
- (d) The AS curve can become vertical only when the economy is operating beyond full employment.
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