In the Keynesian model, a build-up of unwanted inventories leads to
A) rising interest rates.
B) falling unemployment.
C) falling output.
D) falling money wages.

Question

Quizplus · Accepted Answer

In the Keynesian model, a build-up of unwanted inventories indicates that firms are producing more than what is demanded in the market. This leads to a decrease in the level of output, as firms reduce their production to avoid further accumulation of unsold goods. As a result, in the short run, this can lead to a fall in employment levels and hence, rising unemployment. However, the main consequence is a decrease in the level of output.

In the Keynesian Model, a Build-Up of Unwanted Inventories Leads