Discuss the three ranges of the aggregate supply (AS) curve. What could cause the AS curve to shift to the left? What impact would a leftward shift of the AS curve have on the economy?
What will be an ideal response?
The Keynesian range is the horizontal range of the AS curve. The intermediate range is the upward sloping portion. The Classical range is the vertical potion of the AS curve. Changes in aggregate demand will have differing effects on real GDP and the price level depending on which range we are in along the AS curve. Anything which increases costs of production will shift the AS curve leftward. A leftward shift of the AS curve would create stagflation.
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