If firms set prices and then keep them fixed for a period of time, their fixed prices imply that
A) the aggregate price level is fixed and that aggregate demand determines the quantity of goods and services sold.
B) prices are set by aggregate demand and supply.
C) the aggregate price level adjusts continuously.
D) the aggregate price level is fixed and that aggregate supply determines the quantity of goods and services sold.

Question

Quizplus · Accepted Answer

When firms set prices and keep them fixed for a period, it means the aggregate price level remains constant during that period. Therefore, the quantity of goods and services sold is determined by aggregate demand, as prices cannot adjust to balance demand and supply.

If Firms Set Prices and Then Keep Them Fixed for a Period