In the sticky-price model, if no firms have flexible prices, the short-run aggregate supply schedule will:
A) be vertical.
B) be steeper than it would be if some firms had flexible prices.
C) slope upward to the right.
D) be horizontal.

Question

Quizplus · Accepted Answer

If no firms have flexible prices, then all firms will have the same price and will not be able to adjust their prices in the short run. This means that the short-run aggregate supply schedule will be horizontal at the level of output where all firms are producing their maximum quantity given the fixed price level.

In the Sticky-Price Model, If No Firms Have Flexible Prices