The Keynesian short-run aggregate supply curve
A)is horizontal.
B)is vertical.
C)reflects the fact that real GDP is supply-determined.
D)reflects the fact that real GDP does not vary with changes in aggregate demand.

Question

Quizplus · Accepted Answer

The Keynesian short-run aggregate supply curve is horizontal, indicating that in the short run, changes in aggregate demand will result in changes in the level of output, rather than changes in the price level. This is because, in the short run, prices are sticky (i.e. they do not immediately adjust to changes in demand) and firms will adjust output levels instead.

The Keynesian Short-Run Aggregate Supply Curve