Keynes rejected the view that lower wages would direct a recessionary economy back to full employment because
A) lower wages would cause the central bank to reduce the money supply and thereby prolong the recession.
B) lower wages would stimulate inflation and thereby prolong the recession.
C) market forces would quickly direct an economy back to full employment.
D) powerful trade unions and large corporations made wages highly inflexible.

Question

Quizplus · Accepted Answer

Keynes believed that wages were highly inflexible due to the power of trade unions and large corporations, and therefore, lower wages would not necessarily lead to full employment in a recessionary economy. In fact, he argued that this inflexibility could prolong the recession.

Keynes Rejected the View That Lower Wages Would Direct a Recessionary