Keynes believed that wages and prices were sticky. Therefore, a rightward shift of the Jaggregate demand curve would cause
A) a decrease in the level of income.
B) an increase in the unemployment level.
C) a change in the long-run aggregate supply curve.
D) an increase in employment, production, and income.

Question

Quizplus · Accepted Answer

Keynes believed that wages and prices were sticky in the short run, meaning that they do not adjust quickly to changes in demand. Therefore, a rightward shift of the aggregate demand curve would lead to an increase in employment, production, and income as firms increase output to meet the higher demand. This is consistent with Keynesian economics, which emphasizes the role of aggregate demand in driving economic growth and reducing unemployment. Choice A is incorrect because a rightward shift of the aggregate demand curve would lead to an increase, not a decrease, in the level of income. Choice B is incorrect because an increase in aggregate demand would lead to a decrease, not an increase, in the unemployment level. Choice C is incorrect because a shift in aggregate demand would not directly affect the long-run aggregate supply curve, which is determined by technological progress and factors of production.

Keynes Believed That Wages and Prices Were Sticky