Question

What is the intermediate zone of the SRAS curve? Will a rise in output be accompanied by a rise or a fall in the price level in this zone?

Short answer

AnintermediatezoneoftheAScurveexistsbetweentheNeoclassicalandKeynesianzones.

In this zone, the AS curve is neither flatter nor vertical.

It is a zone that is climbing.

Step-by-step solution

Introduction

Short-run aggregate supply (SRAS) is a graphical model that depicts the positive link between an economy's aggregate price level and the amount of aggregate output it produces.

Step 2:  Explanation

Inflation and production growth move in opposite directions in the intermediate zone.

The Intermediate Zone is located between $E_i$and $E_k$in the diagram above. The AS curve is positively slanted in this zone. It should be observed that a rightward shift in the AD curve from AD to ${\mathrm{AD}}_k$leads in higher output but also higher prices. This indicates that as the economy approaches potential GDP, as shown by the LRAS curve, the economy will have a high price level, resulting in inflation.

On the other hand, if the AD curve shifts to the left, output will fall along with low prices, resulting in a recessionary condition.