The Keynesian contention that the short-run aggregate supply curve is horizontal is based on the assumption that there are
A) sticky prices.
B) flexible prices.
C) real prices.
D) upward sloping prices.

Question

Quizplus · Accepted Answer

The Keynesian contention that the short-run aggregate supply curve is horizontal is based on the assumption that there are sticky prices. This means that prices for goods and services do not adjust quickly to changes in demand or supply, and hence, changes in demand or supply mostly affect the quantity supplied rather than the price. This assumption helps to explain why changes in aggregate demand can have a significant impact on output and employment in the short run, whereas in the long run, prices and wages adjust, and the economy returns to its potential output level.

The Keynesian Contention That the Short-Run Aggregate Supply Curve Is