The Keynesian assumptions of the macroeconomy include each of the following except
A) wages and prices can be "sticky" or "fixed."
B) expectations are volatile and can take many forms.
C) the labor market can be out of equilibrium, causing involuntary unemployment.
D) shocks to aggregate demand will change the composition but not the level of GDP.

Question

Quizplus · Accepted Answer

Keynesian economics assumes that wages and prices can be sticky, expectations can be volatile, and the labor market can experience disequilibrium leading to involuntary unemployment. However, it does not assume that shocks to aggregate demand only change the composition of GDP without affecting its level. Instead, Keynesian theory posits that aggregate demand shocks can indeed affect the overall level of GDP, making choice D incorrect.

The Keynesian Assumptions of the Macroeconomy Include Each of the Following