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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