If the Keynesian model is correct,what should be the correlation between interest rates,the price level,real wages,and output over the business cycle? Provide graphs of the labor market,AD/AS,and IS/LM to illustrate.

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Quizplus · Accepted Answer

The Answer is In the Keynesian model,changes in expectations drive changes in investment,shifting the IS curve and AD to the right.As a result,interest rates,the price level,and income should be positively correlated.In addition,the higher price level reduces the real wage; so real wages should be negatively correlated with income.

If the Keynesian Model Is Correct,what Should Be the Correlation