Keynesian view of AS and bottlenecks?

[hdxx]

Hi could someone please explain the Keynesian view of As and bottlenecks? Thx

[S200]

Is this from AOS 2 or AOS 3? I haven't heard of this before...
EDIT -

Sorry, I did actually know this, just not under that name. Basically, Keynes was the first to recognise that volatility and instability in the Aggregate Demand and its components were the cause of the cyclical ups and downs in the level of economic activity. Paraphrased from textbook
This is quite a good Keynesian explanation.

But essentially, it is quite common sense. It links back to the macroeconomic factors affecting the volatility of AD. Try for instance,  Business confidence.

To keep this post looking short

So, pretend you run a large corporation in Australia. Your in-house economist (backed up by RBA statistics) tells you that the economic future of Australia is projected to downturn. In response to that, you go back to your accountant and tell him that 'No, we're not going to invest in X'.
As this scene is repeating itself throughout most companies in Australia, Aggregate demand (C+I+G+(X-M)) lacks an essential component (I - Private investment), and lowers. The lowering of investments means a coinciding appreciation in the amount of saving in the economy; so not only is there a lack of investment, but the Leakages (see five sector flow model if you are not sure what I'm on about) are rising, due to that increase in savings. According to Keynes, the government is in the best place to halt this.
The easiest way for the government to save this downward trend is increase government spending (G), improving cash flow into the economy and hence absolving the effect of the lower I and the increased leakages.

That's quite a ramble Dissertation, but I hope I actually answered the question, and if not, say so, and I'll try again..

[henry_ren]

This is one of the harder parts of the course.
Pretty much the key concept to understand/remember is if the economy is operating at productive capacity.
According to this guys principles, if an economy is operating at full productive capacity, meaning that they are unable to increase supply at this current stage, than any increase in demand will only cause an increase in price and not supply. This is a lot easier to represent on a supply and demand diagram, I recommend just looking at them in your text book. Therefore, according to this theory, the closer an economy gets to its full capacity the more likely they are to raise prices. However, if an economy is not operating at its full capacity, than any increase in demand will just be met by businesses increasing supply, as they have the ability to do so easily and they will to maximise profits.

This is quite different than the usual supply and demand curve you have most likely learned previously but after a bit of practice it is not a difficult concept to grasp.

[hdxx]

Thank you!

[Chelsea f.c.]

We think of output i.e. GDP as comparison to the natural rate where if output is greater than the natural rate this means people are working overtime unemployment is low so people ask for a pay rise causing a shift in the aggregate supply curve and increases in GDP and inflation but note GDP is above its natural rate...

[Chelsea f.c.]

Sorry will go through slowly...
1. If demand shifts right (increase) this will increase GDP and inflation as people work overtime to make up for increased demand but note output is above natural rate...
2. As inflation has increased people will take this into account when bargaining for wages I.e. We want more wages to keep our living standard as normal and supply curve will shift up decreasing GDP and increasing inflation where they will ask for more wages...
3. This will continue until output is back at natural rate but note higher levels of inflation.