According to the Keynesian theory, the typical firm
A) lowers its prices when inventories are decreasing.
B) lowers its prices if sales exceed production.
C) does not change its prices immediately when aggregate demand fluctuates.
D) changes its prices frequently in response to fluctuations in aggregate demand.

Question

Quizplus · Accepted Answer

According to the Keynesian theory, firms do not change their prices immediately in response to fluctuations in aggregate demand. Instead, they may choose to maintain their prices and adjust their production levels to meet the fluctuations in demand. This is because Keynesians believe that prices are "sticky" in the short run and that it takes time for firms to adjust their prices downward or upward. Therefore, choice C is the best answer.

According to the Keynesian Theory, the Typical Firm