Final answer:
In terms of aggregate supply, the short run refers to a period where nominal wages and other input prices are fixed. In this duration, the short-run Keynesian aggregate supply curve shifts to the right due to employers holding down pay increases or replacing higher-paid workers. In the long run, wages and prices are flexible, with potential GDP and aggregate supply determining real GDP.
Step-by-step explanation:
In terms of aggregate supply, the short run is a period in which nominal wages and other input prices are fixed.
During this time, employers may hold down pay increases or replace higher-paid workers with unemployed individuals willing to accept lower wages.
As a result, the short-run Keynesian aggregate supply curve shifts to the right. In the long run, wages and prices are flexible, and potential GDP and aggregate supply determine the size of real GDP.