In the keynesian zone of the aggregate supply curve?


Question: In the keynesian zone of the aggregate supply curve?

In the Keynesian zone of the aggregate supply curve, the output of the economy is determined by the level of aggregate demand. This means that changes in aggregate demand will have a direct and proportional effect on real GDP, but no effect on the price level. This situation occurs when there is a lot of spare capacity or unemployment in the economy, so that firms can increase production without facing higher costs or inflationary pressures. In this zone, the economy is operating below its potential output and there is a deflationary gap.

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