Suppose aggregate demand is increasing over time. Would the modern Keynesian model assume that the price level would always be constant? Explain
What will be an ideal response?
No. Eventually full employment would be reached and firms would be producing at full capacity. The price level would adjust as prices would increase. That is, the short-run aggregate supply curve cannot be horizontal at all possible values of real Gross Domestic Product (GDP).
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If a firm does not sell all of the goods that it produces in a given time period, then the goods
A) do not count in GDP for that time period but always count next period. B) do not count in GDP ever. C) count in GDP the period they are sold to the final user. D) count negatively in GDP as inventory investment. E) count positively in GDP as inventory investment.
When hiring additional workers, a firm operating in a perfectly competitive labor market will
A) have to offer higher wages to hire additional workers, but the old workers do not get the higher wage. B) have to offer higher wages to hire additional workers, and the old workers will also receive the new, higher wage. C) be able to hire additional workers without offering higher wages. D) be able to hire additional workers at lower wages because the new workers have been unemployed.