When the aggregate supply and aggregate demand model is drawn to represent the Keynesian perspective, the short-run aggregate supply curve is:
A) horizontal until it reaches the natural rate of output and then becomes vertical.
B) vertical until it reaches the natural rate of output and then becomes horizontal.
C) upward sloping when there is unemployment and downward sloping when at full employment.
D) downward sloping when there is unemployment and upward sloping when at full employment.

Question

Quizplus · Accepted Answer

In the Keynesian perspective, the short-run aggregate supply curve is horizontal until it reaches the natural rate of output, indicating that prices do not increase as demand increases until full employment is reached. This reflects the idea that there can be increases in output without increases in price levels when there is slack in the economy.

When the Aggregate Supply and Aggregate Demand Model Is Drawn