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Discuss why the aggregate supply (AS) curve is relatively flat within the low ranges of aggregate...

Discuss why the aggregate supply (AS) curve is relatively flat within the low ranges of aggregate output and relatively vertical within the ranges of high aggregate output. Which part of the AS curve fiscal policy works better and why?
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Answer #1

If the aggregate supply curve is relatively flat then elasticity of supply is greater than one.At this stage proportionate change in price leads to more than proportionate change in supply. At this stage fiscal policy works better. It is because of the implementation of fiscal policy individual will get more income they will demand more so automatically price will rise. This rise in price leads to higher levels of supply.It will boost the economy more and more

On the other hand if the supply curve relatively vertical then the elasticity of supply is less than one. That means proporationate change in price leads to less than proportionate change in supply

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