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, P is always greater than Pe because of sticky-wage assumption.
B) In the Keynesian model, P is always equal to Pe because of sticky-wage assumption.
C) In the Keynesian model, P is always less than Pe because of sticky-wage assumption.
D) In the Keynesian model, P may be different than Pe because of sticky-wage assumption.
Correct Answer:
Verified
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