Some Economists Argue That at Low Levels of GDP (Lower

question 142

Essay

Some economists argue that at low levels of GDP (lower than the long-run level of output), a shift to the right in the aggregate-demand curve increases output without a significant increase in the price levels (without inflation), while at higher levels of output (above the long-run level), a shift in the aggregate-demand significantly increases the price level without much effect on output. How would an aggregate-supply curve look like according to this theory?

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Definitions:

Barbara Tversky

A cognitive psychologist known for her work in spatial cognition and cognitive maps.

Systematically Distorted

Refers to information or communication that has been altered in a consistent and predictable manner, often leading to misconceptions or biases.

Heuristics

Simple, efficient rules, often hard-coded by evolutionary processes, that help in making decisions, forming judgments, or solving problems.

Visual Image

A mental picture or representation of an object or scene that is generated by the brain.