According to Keynes
A) the short-run aggregate supply curve is vertical.
B) nominal wages are sticky.
C) money illusion does not exist.
D) markets are perfectly competitive.

Question

Quizplus · Accepted Answer

Keynes believed that nominal wages are sticky in the short-run, meaning they do not adjust immediately to changes in the overall price level. This leads to a positively sloped short-run aggregate supply curve, as firms have an incentive to increase output in response to higher prices, while costs initially remain fixed. Money illusion, the tendency for individuals to misperceive changes in nominal income or prices as changes in real income or prices, is also a concept recognized by Keynes. However, he did not believe that markets were perfectly competitive, and instead argued for the importance of imperfect competition and government intervention to address market failures.