Question

In macroeconomics, in the keynesian range of the AS curve, what happens when there is an increase in aggregate expenditure?

1) Real GDP increases
2) Real GDP decreases
3) Real GDP remains unchanged
4) Cannot be determined

Answer 1

In the Keynesian range of the AS curve, an increase in aggregate expenditure leads to an increase in Real GDP.

Step-by-step explanation:

In macroeconomics, specifically within the Keynesian range of the Aggregate Supply (AS) curve, when there is an increase in aggregate expenditure, the typical result is an increase in Real GDP. This is because, in the Keynesian range, the AS curve is relatively flat, indicating that many resources in the economy, such as labor, are not fully utilized.

Under these circumstances, increases in aggregate demand lead to greater production and employment rather than higher prices. Therefore, if the aggregate expenditure increases, it shifts the Aggregate Demand (AD) curve to the right, thereby increasing Real GDP and potentially impacting the price level, depending on the economy's proximity to full capacity.