The Keynesian AS curve
The Keynesian AS curve shows that the economy can produce more output without raising prices when spare capacity exists. It only becomes vertical — like the classical model — when the economy reaches full employment.
Real World
During the 2008–09 recession, UK GDP fell sharply and unemployment rose above 2.5 million — the economy moved back into the flat section of the Keynesian AS curve, where stimulus spending could raise output without triggering inflation.
Exam Focus
Always identify which section of the Keynesian AS curve the economy is on before evaluating a policy — the effect on prices differs fundamentally.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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