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Chapter 11: 24 (page 292)

Briefly explain the reason for the near-horizontal shape of the SRAS curve on its far left.

Short Answer

Expert verified

SRAS is horizontal when an economy produces its level of output much below its potential level.

Step by step solution

01

Concept introduction

The SRAS curve depicts the relationship between pricing and aggregate output.

Potential GDP is at full employment, an economy can produce its maximum quantity of production.

02

Explanation

The aggregate supply curve is about horizontal at first but quickly becomes nearly vertical. The level of output is substantially below the potential GDP when the aggregate supply curve is horizontal. Horizontal SRAS indicates that an economy has the ability to supply at a particular price level. Any change in the price level, on the other hand, encourages producers to produce more since it becomes more profitable for the firm to sell more products. Furthermore, producers have a good possibility of producing more in the short term by increasing variable input.

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Most popular questions from this chapter

Suppose the U.S. Congress passes significant immigration reform that makes it more difficult for foreigners to come to the United States to work. Use the AD/AS model to explain how this would affect the equilibrium level of GDP and the price level.

Table 11.4 describes Santher's economy.

Price Level
AD
AS
501000250
60950580
70900750
80850850
90800900

a. Plot the AD/AS curves and identify the equilibrium.

b. Would you expect unemployment in this economy to be relatively high or low?

c. Would you expect prices to be a relatively large or small concern for this economy?

d. Imagine that input prices fall and so AS shifts to the right by 150units. Identify the new equilibrium. e. How will the shift in AS affect the original output, price level, and employment?

If the economy is operating in the Keynesian zone of the SRAS curve and aggregate demand falls, what is likely to happen to real GDP?

Why might it be important for policymakers to know which in zone of the SRAS curve the economy is?

Why would an economist choose either the neoclassical perspective or the Keynesian perspective, but not both?
See all solutions

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