According to Keynesian theory,the SRAS curve is positively sloped because
A)employers and employees fail to predict prices correctly.
B)employers and employees have misperception about the change in relative price level.
C)labour contracts are signed for a period in which labour market conditions are not known.
D)wages are flexible,but prices are not.

Question

Quizplus · Accepted Answer

According to Keynesian theory, the short-run aggregate supply (SRAS) curve is positively sloped because labor contracts are signed for a period during which labor market conditions are not known. This means that wages are fixed in the short run, making it more costly for firms to adjust the amount of labor they use. As a result, as demand increases, firms may have to pay their workers more than they would under normal circumstances. This leads to higher costs for firms, which are then passed onto consumers in the form of higher prices. Therefore, in the short run, an increase in aggregate demand leads to a higher price level and an increase in output.

According to Keynesian Theory,the SRAS Curve Is Positively Sloped Because