Keynesians argue that the stabilizing effects of a fall in investment and the resulting decline in the price level assumed by the monetarists
A) will not happen because the price level will actually rise.
B) will happen.
C) is not likely to happen because the price level rarely ever falls.
D) may or may not happen depending on what happens to interest rates.

Question

Quizplus · Accepted Answer

Keynesians believe that a fall in investment does not necessarily lead to a decline in the price level because prices are often sticky downwards due to factors like wage contracts and menu costs, making it rare for the price level to fall significantly in response to reduced demand.

Keynesians Argue That the Stabilizing Effects of a Fall in Investment