In the Keynesian model, the economy can be off the FE line and the LRAS in the short run, because
A) the interest rate is slow to adjust.
B) the unemployment rate is high during recession.
C) the actual price level differs from what was expected when nominal wage contracts were signed.
D) real wage is sticky in short run.

Question

Quizplus · Accepted Answer

In the Keynesian model, the economy can deviate from full employment and long-run aggregate supply in the short run because the actual price level may differ from what was expected when nominal wage contracts were signed, leading to short-run fluctuations in output and employment.

In the Keynesian Model, the Economy Can Be Off the FE