In the short run:
A)price level is fixed at some level, the level of output adjusts to balance the supply and demand for money, and the interest rate responds to changes in aggregate demand and aggregate supply
B)level of output is fixed at some level, the price level adjusts to balance the supply and demand for money, and the interest rate responds to changes in aggregate demand and aggregate supply
C)interest rate is fixed at some level, the price level adjusts to balance the supply and demand for money, and the level of output responds to changes in aggregate demand and aggregate supply
D)price level is fixed at some level, the interest rate adjusts to balance the supply and demand for money, and the level of output responds to changes in aggregate demand and aggregate supply

Question

Quizplus · Accepted Answer

In the short run, the price level is often considered to be sticky or fixed due to menu costs and other frictions, meaning it does not adjust immediately. Instead, the interest rate adjusts to balance the supply and demand for money, and the level of output changes in response to shifts in aggregate demand and aggregate supply. This reflects the Keynesian perspective that in the short run, economies experience price stickiness, allowing for adjustments in output and employment levels in response to economic fluctuations.

In the Short Run