What is the underlying assumption of the original, simplified Keynesian model?
A) The relevant range of the short-run aggregate supply curve (SRAS) is vertical.
B) The relevant range of the aggregate supply curve (AS) is vertical.
C) The relevant range of the short-run aggregate supply curve (SRAS) is horizontal.
D) The relevant range of the long-run aggregate supply curve (LRAS) is horizontal.

Question

Quizplus · Accepted Answer

The original, simplified Keynesian model assumes that the relevant range of the short-run aggregate supply curve (SRAS) is horizontal. This means that changes in aggregate demand will primarily affect output and employment in the short run, with little impact on the price level. In contrast, the long-run aggregate supply curve (LRAS) is assumed to be vertical, meaning that in the long run, changes in aggregate demand will primarily affect the price level, with little impact on output and employment.

What Is the Underlying Assumption of the Original, Simplified Keynesian