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GDP and Aggregate Supply

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Suppose that the Keynesian short-run aggregate supply curve is applicable to a nation's economy. Create appropriate diagrams to assist in answering the following questions:

a.What are two factors that can cause the nation's real GDP to increase in the short run?
b.What are two factors that can cause the nation's real GDP to increase in the long run?

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Solution Summary

Use of Keynesian supply and demand analysis to find factors that cause real GDP to increase.

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Short run increases in GDP result when the AD or SAS shift outward. This can occur the economy emerges from a recession, or the government takes action to expand the economy. This can be done through expansionary fiscal and monetary policy. In addition, expectations about inflation can play a rule. If people believe inflation rates will increase, ...

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