Within the framework of the Keynesian model,
A) changes in output rather than changes in prices direct the economy to equilibrium.
B) changes in prices rather than changes in output direct the economy to equilibrium.
C) changes in interest rates and resource prices will direct the economy to equilibrium.
D) the economy will continually be in equilibrium.

Question

Quizplus · Accepted Answer

In the Keynesian model, changes in output are the primary drivers of the economy towards equilibrium. This is because in the short run, prices are sticky and do not adjust quickly to changes in demand, resulting in changes in output rather than changes in prices to restore equilibrium. Interest rates and resource prices may also play a role, but the main focus is on output. The economy may not be in continuous equilibrium as external shocks or changes in policies can disrupt the equilibrium state.

Within the Framework of the Keynesian Model