The basic assumption of the Keynesian aggregate expenditures model is that prices are fixed.This assumption is based on the observation that prices did not change sufficiently during:
A)the Great Depression.
B)the financial crisis of 2008-2009.
C)World War I.
D)World War II.

Question

Quizplus · Accepted Answer

During the Great Depression, prices did not change sufficiently despite a significant decrease in aggregate demand. This led Keynes to argue that prices are inflexible in the short run, and the assumption of fixed prices is a key feature of the Keynesian aggregate expenditures model. Prices during the financial crisis of 2008-2009 did change, albeit less than during a typical recession, indicating that they are not completely fixed. Similarly, World War I and World War II involved significant inflationary pressures and therefore do not support the assumption of fixed prices.

The Basic Assumption of the Keynesian Aggregate Expenditures Model Is