In the Keynesian region of the aggregate supply curve:
A)increases in aggregate demand are associated with decreases in output, but not with increases in prices.
B)decreases in aggregate demand are associated with increases in prices, but not with increases in output.
C)increases in aggregate demand are associated with increases in output, but not with increases in prices.
D)decreases in aggregate demand are associated with increases in output, but not with increases in prices.
E)increases in aggregate demand are associated with increases in prices, but not with increases in output.

Question

Quizplus · Accepted Answer

In the Keynesian region of the aggregate supply curve, there are still unused resources and therefore increases in aggregate demand can lead to increases in output without causing significant price increases. This is because firms can increase production without needing to increase prices due to the excess capacity. Conversely, decreases in aggregate demand may not lead to decreases in output, but may lead to unused resources and excess capacity, which would not lead to significant price increases. Therefore, increases in aggregate demand are associated with increases in output, but not with increases in prices in the Keynesian region of the aggregate supply curve.

In the Keynesian Region of the Aggregate Supply Curve