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what is SRAS is horizontal?

what is SRAS is horizontal?

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Answer #1

The AS curve describes the relationship between the quantity of goods and services and the price. In other words, it shows how much of a certain good can be produced at a given price level.

In the short run, a firm can only increase labor, but not capital, because capital takes time to implement. Also, as wages are assumed to be sticky in the short run, increase in labor only result in increased quantity, but not price. This is why the SRAS curve is almost horizontal.

Some economists call this horizontal portion of SRAS curve as Keynesian range.

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