How does the original, simplified Keynesian model compare with modern Keynesian analysis?
A) The original Keynesian model assumed price flexibility whereas the modern analysis does not.
B) In both cases, the short-run aggregate supply curve (SRAS) is horizontal.
C) Modern analysis shows an upward sloping SRAS to reflect some price flexibility. The original Keynesian model's SRAS is horizontal and assumes sticky prices.
D) all of the above

Question

Quizplus · Accepted Answer

The original Keynesian model assumed a horizontal SRAS with sticky prices, while modern Keynesian analysis incorporates some price flexibility and thus an upward sloping SRAS. However, both models focus on the short run and the role of aggregate demand in determining output and employment levels. Option A is incorrect because the original Keynesian model assumed sticky prices, not price flexibility. Option B is incorrect because only the original Keynesian model has a horizontal SRAS, while modern analysis incorporates some price flexibility. Option D is incorrect because option A is not true.

How Does the Original, Simplified Keynesian Model Compare with Modern