In the simple Keynesian model of aggregate output determination,an equilibrium level of output below that necessary to maintain full employment can be explained by
A)minimum wage laws.
B)a generous level of unemployment benefits.
C)relatively low aggregate demand.
D)relatively high prices.

Question

Quizplus · Accepted Answer

In the simple Keynesian model, equilibrium output is determined by the intersection of aggregate demand (spending) and aggregate supply (production). If aggregate demand is relatively low, then the equilibrium level of output will be below the level necessary to maintain full employment. This can lead to cyclical unemployment. A and B can impact employment levels, but they are not directly related to the equilibrium output level in the simple Keynesian model. High prices (D) would not result in a lower equilibrium output level, but rather a shift in the short-run aggregate supply curve.

In the Simple Keynesian Model of Aggregate Output Determination,an Equilibrium