In the Keynesian aggregate expenditures 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 aggregate expenditures model, prices are assumed to be fixed because the focus is on short-run changes in the economy where resources are assumed to be underutilized due to a lack of demand. Therefore, changes in aggregate demand translate into changes in output, rather than prices.

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