The flat region of the aggregate supply curve reflects the Keynesian belief that:
A)both inflation and unemployment does not exist.
B)high growth rate of money supply poses problems in the economy.
C)unemployment is usually experienced amidst high real GDP.
D)government intervention in the economy aggravates the problems of inflation and unemployment.
E)inflation is not a problem when unemployment is high.

Question

Quizplus · Accepted Answer

The flat region of the aggregate supply curve, also known as the Keynesian range, reflects the belief that when the economy is operating below potential, high levels of unemployment coincide with low levels of inflation. Therefore, in this range, inflation is not a problem even though unemployment may be high. This view contrasts with the classical and neoclassical views that suggest the economy always moves toward full employment in the long run, and thus, high levels of unemployment are temporary and must be associated with low inflation.

The Flat Region of the Aggregate Supply Curve Reflects the Keynesian