Question

Read the statement below carefully, and decide whether it is true or false. And then EXPLAIN your answer (whether “true “ or “false”).

Along the Keynesian range of the aggregate supply curve, higher aggregate demand fails to stimulate output and only causes inflation.

Answer 1

Given

The aggregate supply curve is divided into three ranges , the Horizontal range , the Intermediate range , the Vertical range.

The horizontal range is the Keynesian range where large amount of spare capacity is available in the economy . So the supply curve is elastic in nature . Hence , the economy is not at or near full employment at this range . At the intermediate section the economy approaches towards full employment.

The Statement is FALSE.