A horizontal aggregate supply curve below the level of full employment is most consistent with which of the following views of the economy?
A)Keynesian.
B)Monetarist.
C)Supply-side.
D)Consensus.

Question

Quizplus · Accepted Answer

A horizontal aggregate supply curve below the level of full employment indicates that increases in aggregate demand results in an increase in output, rather than an increase in prices. This is consistent with the Keynesian view that the economy can experience a prolonged period of underemployment equilibrium due to sticky wages and prices, and that government intervention is necessary to stimulate demand and push the economy towards full employment. Monetarists and supply-siders, on the other hand, believe that the economy will naturally adjust towards equilibrium, and that government intervention can cause more harm than good. Consensus views typically fall somewhere in between these two extremes.

A Horizontal Aggregate Supply Curve Below the Level of Full