Because of price stickiness in the Keynesian model,a decline in investment demand will not cause the
A)LM curve to shift down and to the right in the short run.
B)LM curve to shift in the long run.
C)IS curve to shift down and to the left in the short run.
D)IS curve to shift in the long run.

Question

Quizplus · Accepted Answer

In the Keynesian model, price stickiness means that prices do not adjust immediately to changes in demand. A decline in investment demand shifts the IS curve down and to the left in the short run, but it does not affect the LM curve, which is determined by money supply and demand.

Because of Price Stickiness in the Keynesian Model,a Decline in Investment