Consider the Following Short Run Aggregate Supply Equation: Y = $\hat Y$

question 17

Multiple Choice

Consider the following short run aggregate supply equation: Y = $\hat Y$ + b (P - Pᵉ) ,where Y is the real output, $\hat Y$ is the full employment output,P and Pᵉ are the actual and expected price levels,respectively.Which of the following is correct?

• A)In the Keynesian model,P is always equal to Pᵉ because of sticky-wage assumption.
• B)In the Keynesian model,P may be different than Pᵉ because of sticky-wage assumption.
• C)In the Keynesian model,P is always greater than Pᵉ because of sticky-wage assumption.
• D)In the Keynesian model,P is always less than Pᵉ because of sticky-wage assumption.

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Definitions:

Affordability

The degree to which a good or service is priced at a level that is accessible to individuals or communities, often in relation to income and expenses.

Latent Function

Unintended and unrecognized consequences of an institution or social phenomenon.

Education

The process of receiving or giving systematic instruction, particularly at a school or university, fostering knowledge and skill development.

Standardized Testing

A form of testing that requires all test takers to answer the same questions, or a selection of questions from a common bank of questions, in the same way, to enable a consistent measurement of their abilities or performance.