Aggregate Demand and Aggregate Supply Analysis: Exploring the Keynesian AS Curve

The video explores the Keynesian aggregate supply (AS) curve, contrasting it with the classical approach. It explains the phases of the AS curve: elastic, intermediate, and inelastic, and their implications for economic policy. The video discusses how shifts in aggregate demand affect price levels and real output, emphasizing the importance of understanding spare capacity. It also covers the impact of investment on productivity and the sustainability of economic growth. The video concludes with a discussion on the implications for future economic policy.

Who developed the Keynesian Aggregate Supply Curve?

• David Ricardo

• Adam Smith

• John Maynard Keynes

• Milton Friedman

How does the Keynesian Aggregate Supply Curve differ from the classical approach?

• It focuses on long-term growth

• It assumes constant prices

• It considers wage rigidity

• It ignores spare capacity

What is the primary focus of the elastic phase in the Keynesian Aggregate Supply Curve?

• Government intervention

• Full employment

• Wage rigidity

• Price flexibility

During which phase of the Keynesian Aggregate Supply Curve does the curve transition from elastic to perfectly inelastic?

• Intermediate phase

• Elastic phase

• Inelastic phase

• Initial phase

What happens to the price level when there is a large outward shift in aggregate demand during the elastic phase?

• Price level increases significantly

• Price level remains unchanged

• Price level decreases

• Price level fluctuates

Why might a government be cautious about stimulating aggregate demand when the economy is near full capacity?

• It might reduce exports

• It could result in high inflation

• It might cause unemployment

• It could lead to deflation

What is the expected outcome of increased investment in the Keynesian model when the economy is close to full capacity?

• Significant increase in real output

• Decrease in unemployment

• Large decrease in price level

• Minimal change in real output

What is a potential consequence of not achieving a shift in aggregate supply after an increase in aggregate demand?

• Sustained economic growth

• Increased competitiveness

• Rising inflation

• Decreased imports

In the Keynesian model, what suppresses the price rise when there is significant spare capacity?

• Government intervention

• Increased exports

• Wage flexibility

• Spare capacity

What is the effect of spare capacity on the outcomes of economic stimulus in the Keynesian model?

• It increases unemployment

• It amplifies price increases

• It suppresses price increases

• It reduces real output