Answer to Question #211020 in Macroeconomics for Kay

Question

Does the Keynesian explanation of the relationship between output and price-level hold in the long run 

equilibrium?

Answer 1

The Keynesian zone occurs at the left of the SRAs curve where it's fairly flat which makes the movements in the aggregate demand to affect the output but makes little effects on that price level. So in the long-run there will be no relationship between the price level and the output. Increase in prices will cause the short run aggregate supply curve and long run aggregate supply to shift left hence no equilibrium.