In the IS-LM model,the implicit assumption made about aggregate supply was that the
A)aggregate supply schedule was vertical because prices were flexible.
B)aggregate supply schedule was horizontal because prices were fixed.
C)aggregate supply schedule was upward sloping to the right because wages and prices were fixed.
D)supply of output was fixed.
E)none of the above.

Question

Quizplus · Accepted Answer

The IS-LM model implicitly assumes that the aggregate supply schedule is horizontal because it operates under the assumption that prices are fixed in the short run, allowing output to change in response to demand without affecting the price level.

In the IS-LM Model,the Implicit Assumption Made About Aggregate Supply