According to the simple Keynesian view the aggregate supply curve is ?
Correct answer: C. horizontal until it reaches full capacity and then becomes vertical
- A. downward sloping over all levels of output
- B. upward sloping over all levels of output
- C. horizontal until it reaches full capacity and then becomes vertical
- D. vertical until it reaches full capacity and then becomes horizontal
Explanation
In the simple Keynesian model, spare capacity allows firms to increase output at a roughly fixed price, so aggregate supply is horizontal until full employment. Once capacity is reached, further demand mainly raises prices, giving a vertical segment.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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