Question

What is the Keynesian zone of the SRAS curve? How much is the price level likely to change in the Keynesian zone?

Short answer

The Keynesian supply curve is a flatter version of the AS curve.

It's on the AS curve's almost horizontal side.

Step-by-step solution

Introduction

SRAS curve- The link between real gross domestic product (GDP) and price level is depicted by the short-run aggregate supply (SRAS) curve.

Keynesian zone- The Keynesian zone is located to the left of the SRAS curve, where it is rather flat, implying that changes in AD will affect output but not the price level.

Explanation

It is frequently found on the AS curve's left side. Equilibrium $E_K$is found at the junction of the AS and AD curves. However, because the Keynesian Supply Curve is virtually horizontal, any shift in the Aggregate Demand Curve will have a much greater impact on Real GDP than a change in price level. This means that as the AD curve swings rightward, output will change faster than price.

The economy is in recession in the Keynesian zone because equilibrium is far from potential GDP, as seen by the LRAS curve. This is related to the cyclical nature of unemployment.

There is no inflationary pressure in the economy because prices are barely changing while output rises.