According to the Keynesian model, the short-run aggregate supply (SRAS) curve is horizontal when
A) real Gross Domestic Product (GDP) is at full capacity but prices are not flexible.
B) there are no unemployed resources and wages do not change when prices change.
C) prices react to an aggregate demand shock but real Gross Domestic Product (GDP) does not.
D) there are unemployed resources and prices do not fall when aggregate demand falls.

Question

Quizplus · Accepted Answer

The Keynesian model posits that in the short run, with unemployed resources (like labor), prices may not adjust downwards immediately or sufficiently when aggregate demand falls, leading to a horizontal SRAS curve. This reflects the idea that firms are more likely to adjust production levels than prices in response to changes in demand when there is slack in the economy.

According to the Keynesian Model, the Short-Run Aggregate Supply (SRAS)