Take a look again at Figure 1 (originally from the page in the text titled "Neoclassical and Keynesian Perspectives in the AD-AS Model.") Price Level Pn Pi Pk ADK AD Yk ADn Ek Keynesian zone Real GDP E₁ LRAS Yi En SRAS Neoclassical zone Intermediate zone Yn Figure 1. Keynes, Neoclassical, and Intermediate Zones in the Aggregate Supply Curve. Near the equilibrium Ek, In the Keynesian zone at the far left of the SRAS curve, small shifts in AD, either to the right or the left, will affect the output level Yk, but will not much affect the price level. In the Keyneslan zone, AD largely determines the quantity of output. Near the equilibrium En, In the neoclassical zone at the far right of the SRAS curve, small shifts in AD, elther to the right or the left, will have relatively little effect on the output level Yn, but Instead will have a greater effect on the price level. In the neoclassical zone, the near-vertical SRAS curve close to the level of potential GDP largely determines the quantity of output. In the Intermediate zone around equilibrium El movement In AD to the right will increase both the output level and the price level, while a movement In AD to the left would decrease both the output level and the price level. Think about a minor recession, like the one that occurred in 1990. (Hint: a minor recession could be caused by a slight shift to the left in the AD curve.)
Take a look again at Figure 1 (originally from the page in the text titled "Neoclassical and Keynesian Perspectives in the AD-AS Model.") Price Level Pn Pi Pk ADK AD Yk ADn Ek Keynesian zone Real GDP E₁ LRAS Yi En SRAS Neoclassical zone Intermediate zone Yn Figure 1. Keynes, Neoclassical, and Intermediate Zones in the Aggregate Supply Curve. Near the equilibrium Ek, In the Keynesian zone at the far left of the SRAS curve, small shifts in AD, either to the right or the left, will affect the output level Yk, but will not much affect the price level. In the Keyneslan zone, AD largely determines the quantity of output. Near the equilibrium En, In the neoclassical zone at the far right of the SRAS curve, small shifts in AD, elther to the right or the left, will have relatively little effect on the output level Yn, but Instead will have a greater effect on the price level. In the neoclassical zone, the near-vertical SRAS curve close to the level of potential GDP largely determines the quantity of output. In the Intermediate zone around equilibrium El movement In AD to the right will increase both the output level and the price level, while a movement In AD to the left would decrease both the output level and the price level. Think about a minor recession, like the one that occurred in 1990. (Hint: a minor recession could be caused by a slight shift to the left in the AD curve.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Take a look again at Figure 1 (originally from the page in the text titled "Neoclassical and Keynesian Perspectives in the AD-AS Model.")
Price Level
Pn
Pi
Pk
ADK
AD
Yk
ADn
Ek Keynesian zone
Real GDP
Ei
LRAS
En
SRAS
Neoclassical zone
Intermediate zone
Yi Yn
Figure 1. Keynes, Neoclassical, and Intermediate Zones in the Aggregate
Supply Curve. Near the equilibrium Ek, In the Keynesian zone at the far left of the
SRAS curve, small shifts in AD, elther to the right or the left, will affect the output
level Yk, but will not much affect the price level. In the Keyneslan zone, AD
largely determines the quantity of output. Near the equilibrium En. In the
neoclassical zone at the far right of the SRAS curve, small shifts in AD, elther to
the right or the left, will have relatively little effect on the output level Yn, but
Instead will have a greater effect on the price level. In the neoclassical zone, the
near-vertical SRAS curve close to the level of potential GDP largely determines
the quantity of output. In the Intermediate zone around equilibrium El movement
In AD to the right will increase both the output level and the price level, while a
movement In AD to the left would decrease both the output level and the price
level.
Think about a minor recession, like the one that occurred in 1990. (Hint: a minor recession
could be caused by a slight shift to the left in the AD curve.)
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