Traditional Keynesians argued that when wages are rigid, changes in output result in:
A) small changes in goods market prices and a flat aggregate supply curve.
B) large changes in goods market prices and a flat aggregate supply curve.
C) large changes in goods market prices and a steep aggregate supply curve.
D) small changes in goods market prices and a steep aggregate demand curve.
E) small changes in goods market prices and a horizontal aggregate demand curve.

Question

Quizplus · Accepted Answer

Traditional Keynesians believe that when wages are rigid, changes in output lead to small changes in goods market prices, which is represented by a flat aggregate supply curve. This is because rigid wages mean that costs do not adjust quickly to changes in demand, leading to output changes having minimal impact on prices.

Traditional Keynesians Argued That When Wages Are Rigid, Changes in Output