Within the Keynesian model, when total spending is less than the full-employment level of output, firms will
A) continue to produce the current level of output.
B) cut production to reduce their inventory accumulation.
C) expand production to reduce their inventory accumulation.
D) cut production to build inventories.

Question

Quizplus · Accepted Answer

In the Keynesian model, if total spending is less than the full-employment level of output, firms will cut production to reduce their accumulated inventory. This is because when total spending is less than the current level of output, firms are not able to sell all of their products, leading to an accumulation of unsold goods. To avoid further accumulation, firms will reduce production.

Within the Keynesian Model, When Total Spending Is Less Than