Keynesian belief that the aggregate supply curve is relatively flat in the short run means that they expect their policies to cause

Question

Quizplus · Accepted Answer

If the aggregate supply curve is relatively flat in the short run, then an increase in aggregate demand (through Keynesian policies such as fiscal stimulus or monetary expansion) will cause a relatively large increase in output with little inflationary pressure. This is because there is excess capacity in the economy that can be utilized without causing prices to rise significantly. Therefore, the best choice is C - large increases in output and little inflation.

Keynesian Belief That the Aggregate Supply Curve Is Relatively Flat