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Chapter 24: Q 15. (page 601)

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?

Short Answer

Expert verified

This will have an effect on the economy.

Step by step solution

01

Step 1. Definition

The SRAS (short-run aggregate supply) curve is a curve that shows that if there is an increase in price level and you will be moving along the SRAS, there will be an increase in the amount of real GDP which will be produced in an economy.

02

Step 2. Explanation

Because in the Keynesian zone the SRAS curve is horizontal, a decline in AD will slow down real economic activity like production, the flow of goods, and services within the economy. But there will be no effect on the prices.

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Most popular questions from this chapter

Economists expect that as the labor market continues to tighten going into the latter part of 2015that workers should begin to expect wage increases in 2015and 2016. Assuming this occurs and it was the only development in the labor market that year, how would this affect the AS curve? What if it was also accompanied by an increase in worker productivity?

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?

What is Say’s law?

Suppose, after five years of sluggish growth, the European Union's economy picks up speed. What would be the likely impact on the U.S. trade balance, GDP, and employment?

Explain why the short-run aggregate supply curve might be vertical in the neoclassical zone of the SRAS curve. How might we tell if we are in the neoclassical zone of the AS?

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