Multiple Choice
Consider the following short run aggregate supply equation:
where Y is the real output
is the full employment output, P and Pe are the actual and expected price levels, respectively. Which of the following is correct?
A) In the Keynesian model, b is positive because of the sticky wage assumption.
B) In the classical model, b is zero because of the price misperception assumption.
C) In the Keynesian model, b is zero because of the sticky wage assumption.
D) Both A and C are correct.
Correct Answer:
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