The following diagrams show the \(A D\) and \(A S\) curves in two different economies.

a. Explain what aspect of firms' behaviour might give rise to the horizontal \(A S\) curve in Economy \(A\).

b. Explain what aspect of firms' behaviour gives rise to the upward-sloping \(A S\) curve in Economy \(B\).

c. In which economy is output purely demand determined? Explain.

d. Consider the effects of an increase in autonomous expenditure. Which economy has the larger multiplier? Explain your reasoning.

Transcribed Image Text:

Economy A AS A AD A P AS Y Economy B AD B Y