According to modern Keynesian analysis, how is the short-run aggregate supply curve described?

According to modern Keynesian analysis, how is the short-run aggregate supply curve described?

• A. Vertical.
• B. Downward sloping.
• C. Horizontal.
• D. Upward sloping.

Answer: (D)

In modern Keynesian analysis, the short-run aggregate supply curve is described as upward sloping. This reflects the idea that as the overall price level increases, producers are willing to supply more goods and services because higher prices can lead to higher profits. In the short run, some prices, especially wages, may be sticky or slow to adjust to changes in economic conditions. As a result, an increase in demand often leads to higher output and employment in the economy, pushing the aggregate quantity supplied higher as prices rise. This upward slope illustrates how businesses respond to higher demand by utilizing their existing resources more intensively, often leading to an increase in production. Ultimately, this behavior indicates that, in the short run, increased demand can result in both higher prices and greater output, which is consistent with Keynesian economics' focus on demand-side factors in influencing economic performance.

In modern Keynesian analysis, the short-run aggregate supply curve is described as upward sloping. This reflects the idea that as the overall price level increases, producers are willing to supply more goods and services because higher prices can lead to higher profits. In the short run, some prices, especially wages, may be sticky or slow to adjust to changes in economic conditions. As a result, an increase in demand often leads to higher output and employment in the economy, pushing the aggregate quantity supplied higher as prices rise.

This upward slope illustrates how businesses respond to higher demand by utilizing their existing resources more intensively, often leading to an increase in production. Ultimately, this behavior indicates that, in the short run, increased demand can result in both higher prices and greater output, which is consistent with Keynesian economics' focus on demand-side factors in influencing economic performance.