The main difference between the short-run and the long-run aggregate supply in the Keynesian model is
A)in the short run prices and wages are assumed fixed,but in the long run they are assumed flexible.
B)in the short run prices are assumed flexible but wages fixed,whereas in the long run both are assumed flexible.
C)in the short run wages are assumed flexible but prices fixed,whereas in the long run both are assumed flexible.
D)in the short run potential GDP is equal to actual GDP,but in the long run the former exceeds the latter.

Question

Quizplus · Accepted Answer

In the Keynesian model, the short-run aggregate supply curve is upward sloping and assumes that prices are flexible but wages are fixed. In the long run, both prices and wages are assumed to be flexible, resulting in a vertical long-run aggregate supply curve. Therefore, choice B is the correct answer.

The Main Difference Between the Short-Run and the Long-Run Aggregate