Some economists believe that a positive aggregate demand shock to an economy with large amounts of excess capacity and unemployment does not necessarily cause an increase in prices. Economists who adhere to this belief are followers of
A)classical economics.
B)Say's laws of economics.
C)Keynesian economics.
D)supply-side economics.

Question

Quizplus · Accepted Answer

Economists who believe that a positive aggregate demand shock does not necessarily cause an increase in prices are followers of Keynesian economics. Keynesian economists argue that in times of excess capacity and high unemployment, an increase in aggregate demand will lead to an increase in output and employment rather than an increase in prices. This is because firms will be able to increase production using their excess capacity without raising prices, and unemployed workers will be hired to meet the increased demand.

Some Economists Believe That a Positive Aggregate Demand Shock to an Economy