In an ad/as a model, the point where the economy has excess capacity is called the Keynesian zone of the AS curve.
What is shown by the Keynesian curve?
- The Keynesian cross diagram, also known as the expenditure-output model, illustrates how the level of total expenditure varies with the level of economic output.
- Movements in AD will affect output but have minimal impact on the level of prices because the Keynesian zone is located at the left of the SRAS curve, where it is rather flat. According to Say's law, supply drives demand.
- A change in aggregate demand merely affects the price level and has no impact on real GDP or employment.
- Movements in AD will alter the price level, but they will have minimal effect on output because the neoclassical zone is located at the right of the SRAS curve, where it is very vertical.
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