Within the framework of the Keynesian model, if spending is abnormally low,
A) the economy will be in equilibrium at full employment, but inflation will be high.
B) equilibrium output will be less than the full-employment rate of output.
C) the equilibrium output rate will exceed the economy's full-employment capacity.
D) the actual rate of unemployment will be less than the natural rate of unemployment.

Question

Quizplus · Accepted Answer

Within the Keynesian model, if spending is abnormally low, then the aggregate demand will also be low, which will lead to a situation where equilibrium output will be less than the full-employment rate of output. This means that there will be a recessionary gap, which will lead to high unemployment rates and low inflation.

Within the Framework of the Keynesian Model, If Spending Is