If firms set prices and then keep them fixed for a period of time, their fixed prices imply that
A) prices are set by aggregate demand and supply.
B) the aggregate price level is fixed and that aggregate supply determines the quantity of goods and services sold.
C) the aggregate price level is fixed and that aggregate demand determines the quantity of goods and services sold.
D) the aggregate price level adjusts continuously.

Question

Quizplus · Accepted Answer

If firms set prices and keep them fixed, it implies that the aggregate price level is fixed. However, the quantity of goods and services sold will be determined by the level of aggregate demand. Therefore, choice C is the best answer as it accurately describes the relationship between fixed prices, the aggregate price level, and aggregate demand.

If Firms Set Prices and Then Keep Them Fixed for a Period