What shape did the short-run aggregate supply curve have during the 1930s, according to Keynes? Explain.

What will be an ideal response?


Keynes argued the short-run aggregate supply curve was horizontal during the 1930s. There was substantial unemployment and excess capacity during the depression, so that shifts in aggregate demand would affect total output without affecting the price level. Keynes argued that prices and wages were inflexible, especially downward, and could not be relied upon to bring about a full-employment equilibrium.