The new Keynesian sticky-price theory states that in the short run:
A)the aggregate-supply curve is downward-sloping
B)the aggregate-supply curve is upward-sloping
C)the aggregate-supply curve is horizontal
D)the aggregate-supply curve is vertical

Question

Quizplus · Accepted Answer

The new Keynesian sticky-price theory suggests that prices in the economy are slow to adjust to changes in demand or supply, leading to short-run price stickiness. This means that in the short run, the aggregate-supply (AS) curve is upward-sloping, as changes in demand or supply can result in changes in output (real GDP) at a fixed price level. In the long run, prices are expected to adjust fully, resulting in a vertical AS curve.

The New Keynesian Sticky-Price Theory States That in the Short