Question

1. Identify and name the three stages of the Aggregate Supply curve.

Answer 1

three stages of Keynesian aggregate supply curve/(Stage 1)

Stage 1: Real GDP is low, and the price level remains constant as real GDP increases. (A lot of unemployment of resources and spare capacity

-Stage 2: Real GDP increases are accomplished by increases in the price level. Eventually bottlenecks in resource supplies begin to appear as there is no longer spare capacity in the economy. (FOP become scarer)

Stage 3: Real GDP reaches a level beyond which it cannot increase anymore; at this point, the price level rises very rapidly. Inflationary gap occurs.

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