The Keynesian AS Curve

The Keynesian Aggregate Supply curve is a distinctive feature of Keynesian macroeconomics. Unlike the classical vertical LRAS, the Keynesian AS curve has three distinct sections, each with different implications for the effectiveness of demand management policy. Understanding this curve is essential for analysing output gaps, the impact of fiscal and monetary policy, and the debate between Keynesian and classical economists.

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The Three Sections of the Keynesian AS Curve

The Keynesian AS curve reflects the idea that the economy's response to increases in aggregate demand depends on how close the economy is to full capacity:

Section 1: The Horizontal (Perfectly Elastic) Section