A typical AS curve has three parts: a flat, horizontal portion at low levels of

Question

A typical AS curve has three parts: a flat, horizontal portion at low levels of output, a middle section with a more-or-less gentle upward slope, and a steep or vertical portion at high levels of output. Let’s consider two of these parts individually, the horizontal portion and the vertical portion.

B. Imagine that AS and AD intersect in the horizontal portion of the AS curve. In this case, if aggregate demand increases, how does the output of the economy change? Does demand drive the economy here? (5 points)

C. Imagine that AS and AD intersect in the vertical portion of the AS curve. In this case, if aggregate demand increases, how does the output of the economy change? Does demand drive the economy here? (5 points)

D. Imagine that AS and AD intersect in the vertical portion of the AS curve. Assume a technological breakthrough increases the full-employment level of RGDP and shifts the AS curve to the right. In this case, when aggregate supply increases, how does the output of the economy change? Does supply create its own demand? (5 points)

Explanation / Answer

b. when average demand for a product increases its supply in long run also increases. it helps the economy to move forward and the economy will grow positively.

c. the intersection point is called as equilibrium point, which decides the amount of output should produced with a given set of price in a specific period. at this stage the economy also be assumed that at equilibrium level.

d. no, the movement of supply curve towards right means the supply increases than market demand. it leads to down fall of price of the product, and economy will experience negative changes. supply can not create its own demand in the market.

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