In the modern Keynesian model, over much of its range the short-run aggregate supply (SRAS) curve is
A) horizontal.
B) vertical.
C) upward sloping.
D) downward sloping.

Question

Quizplus · Accepted Answer

In the modern Keynesian model, the short-run aggregate supply (SRAS) curve is upward sloping. This is because in the short run, firms are unable to adjust their prices fully to changes in demand or costs, leading to a positive relationship between output and prices. As output increases, firms may experience some bottlenecks and thus face higher costs, which they pass on to consumers in the form of higher prices.

In the Modern Keynesian Model, Over Much of Its Range