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What are our market expectations when the AS ( Aggregate Supply ) curve to slope upward?
1. Taking real output ranges, the AS curve may actually focus horizontally;
2. Any sudden increase in AD (Aggregate Demand) affects both real output and prices;
3. Furthermore, an increase in Aggregate Demand does not translate (effectively) dollar-for-dollar into increased real GDP.
On the other scenario, when the AD curve shifts to the right (expressions of market interest to be aggressive), the economy moves up the Aggregate Supply (AS), not horizontally to the right (responsively creates more productive stages). Thereby, both the real output and the price level changes.
When equilibrium is achieved such that the AS and AD curves intersect. The price level is higher that it was intially. Although real output is higher as well, full-employment target fall short. (Hence, naive Keynesian policy regrets a failure to achieve full employment).
An ideal setting is that recognizing that shifting (increasing) Aggregate Demand by the (relative) amount of the GDP gap will achieve full employment only if the price level does not rise. (There is always a non-beneficial amount of isolation on the prices changes on AS).
