As Keynesian underemployment is a normal situation due to the inflexibility of wages, the AS...
Question:
As Keynesian underemployment is a normal situation due to the inflexibility of wages, the AS curve is horizontal in the SR (short run). Initially, the economy is at point E1, but due to the great depression, the AD curve shifts from AD1 to AD2, resulting in the new equilibrium at which point?
Price Rigidity:
Price rigidity is a key assumption of the Keynesian paradigm in economics. Under this assumption, the prices of inputs and outputs are not flexible in the short run, yielding possible under-utilization of resources.
Answer and Explanation: 1
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View this answerThe equilibrium point is where the new aggregate demand curve intersects with the aggregate supply curve, which is point E2 show in the diagram...
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Aggregate Supply in the Economy: Definition and Determinants
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Chapter 7 / Lesson 7
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Learn the definitions of aggregate supply and aggregate demand. See the determinants of aggregate supply, the determinants of aggregate demand, and what causes them to shift.
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