[Related to the Economics in Practice on p. 564] The Economics in Practice describes the simple Keynesian aggregate supply curve as one in which there is a maximum level of output given the constraints of a fixed capital stock and a fixed supply of labor.

The presumption is that increases in demand when firms are operating below capacity will result in output increases and no input price or output price changes but that at levels of output above full capacity, firms have no choice but to raise prices of demand increases. In reality, however, the short-run aggregate supply curve isn’t flat and then vertical. Rather, it becomes steeper as we move from left to right on the diagram. Explain why. What circumstances might lead to an equilibrium at a very flat portion of the AS curve? at a very steep portion?