The simple Keynesian model illustrates the idea that the economy can come to rest at a level of aggregate output
A)only at the full employment level.
B)below the full employment level.
C)only when the price level is fixed.
D)only when wages are stable.

Question

Quizplus · Accepted Answer

The simple Keynesian model assumes that prices are fixed in the short run, and that the level of aggregate expenditure determines the level of output. At any given level of aggregate expenditure, the model predicts a corresponding level of output. However, this level of output may not necessarily be at full employment, as there may be idle resources in the economy. Therefore, the simple Keynesian model suggests that the economy can come to rest at a level of aggregate output below the full employment level, where there is a gap between potential output and actual output.

The Simple Keynesian Model Illustrates the Idea That the Economy