In the Keynesian aggregate expenditure model, prices are assumed to be fixed because:
A) unemployment is low.
B) resources are underutilized.
C) consumption and disposable income are closely related.
D) the government heavily intervenes in the economy.

Question

Quizplus · Accepted Answer

In the Keynesian model, prices are assumed to be fixed because resources are underutilized, meaning there is excess capacity in the economy, allowing output to increase without affecting prices.

In the Keynesian Aggregate Expenditure Model, Prices Are Assumed to Be