Why is the aggregate supply curve very flat at low levels of output below the full-employment...

Why is the aggregate supply curve very flat at low levels of output below the full-employment level?

Expert Solution

Aggregate supply curve is horizontal or flat which means in order to increase output, there is no need to increase price because when output is below full employment or potential output then there are unemployment resources or unemployed labor. In order to use those unemployed resources there is no need to increase the price of these resources which doesnot lead to change in cost of production leading to no further change in price

Thus AS is flat or horizontal at an output level below full employment level

Rahul Sunny answered 2 years ago

Discuss why the aggregate supply (AS) curve is relatively flat within the low ranges of aggregate...

Discuss why the aggregate supply (AS) curve is relatively flat within the low ranges of aggregate output and relatively vertical within the ranges of high aggregate output. Which part of the AS curve fiscal policy works better and why?

equilibrium levels; full employment levels of aggregate; Y=1250 &nbsp

equilibrium levels; full employment levels of aggregate; Y=1250 C= 1380 C=1100 S=220 S=150 AE=1530 1) Calculate the value of the recessionary gap (in 3 different way) 2) Draw the Keynesian Income Expenditure diagram showing all the equilibrium and full employment values, as well as three distinct areas displaying the recessionary gap. 3) Outline three fiscal policies to close the recessionary gap. could you please show all your work, and indicate the impact of each policy on the government budget Econ

Assume an economy operating at Full Employment (on the Long Run Aggregate Supply Curve).Using Aggregate Demand...

Assume an economy operating at Full Employment (on the Long Run Aggregate Supply Curve).Using Aggregate Demand and Short-Run Aggregate Supply in each of the following cases state: i) the direction AD would shift, ii) the change in the price level; iii) The change in GDP, iv) whether the economy would end up in a contractionary gap or expansionary gap. a) There is a decrease in interest rates b) The is a decline in the value of Household Wealth c) There...

The shape of the aggregate supply curve of Xanadu is flat and the government applied contractionary...

The shape of the aggregate supply curve of Xanadu is flat and the government applied contractionary monetary and fiscal policy for increasing economic growth. According to these policies, what happens ? If these policies are not the correct ones, draw graphs and show and explain the correct ones.

Let’s say the AD/AS equilibrium is at full employment, and then the aggregate demand curve moves...

Let’s say the AD/AS equilibrium is at full employment, and then the aggregate demand curve moves to the left: (all answers “up” or “down”; and assume prices are not sticky) What happens to the amount of U.S. imports and exports when prices in the U.S. go up. List and explain two of the reasons that investment spending is so much more volatile than consumption spending. Let’s say the AD/AS equilibrium is at full employment, and then the aggregate demand curve...

Assume that the economy falls into recession. (i.e., output falls below full employment output) and the...

Assume that the economy falls into recession. (i.e., output falls below full employment output) and the Fed describes by buying bonds. Briefly describe the process by which the money supply is affected? What does this do to the Interest rate? Briefly explain the chain of causality of how monetary policy might help affect help move the economy back toward full employment output (That is, how can monetary policy affect AD in the short-run?) Discuss the factors or circumstances that may...

The short-run aggregate supply curve shows: a. What happens to output in an economy as the...

The short-run aggregate supply curve shows: a. What happens to output in an economy as the actual price level changes, holding all other determinants of real GDP constant b. How firms respond to changes in interest rates c. The relationship between the price level and aggregate expenditure d. What happens to output in an economy when the government spends more money Which of the following are assumed to remain unchanged along a given short-run aggregate supply curve? Check all that...

1. Explain why the Aggregate Supply curve is upward sloping?

The graph below depicts the full-employment level of output and the actual level of real GDP.

Contractionary Fiscal Policy Exercise 3 The graph below depicts the full-employment level of output and the actual level of real GDP. a. At which time period is an economic expansion occurring? Year 1 Year 9 Year 3 b. What is the best policy action by the federal government during an economic expansion? Expansionary fiscal policy Full-employment fiscal policy Contractionary fiscal policy c. True or false: In order to smooth out the business cycle, fiscal policy should adjust government spending and taxes to reflect the exact difference between actual GDP and...

12.AGGREGATE DEMAND AND AGGREGATE SUPPLY a. What is the economic reason why the SRAS curve slopes...

12.AGGREGATE DEMAND AND AGGREGATE SUPPLY a. What is the economic reason why the SRAS curve slopes up? b. Name some factors that could cause AD to shift, and say whether they would shift AD to the right or to the left. c. Would a shift of AD to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of AD to the left? d. Suppose concerns about thesize of the federal budget...

Question