Which of the following statements is true?
A) Keynes believed wages are inflexible downward but prices (of goods and services)are flexible.
B) Keynes believed an economy could get stuck in a recessionary gap.
C) Keynes originated the idea of efficiency wages.
D) Keynes believed the economy is self-regulating.
E) b and c

Question

Quizplus · Accepted Answer

Keynes believed in the possibility of an economy getting stuck in a recessionary gap, which is a situation where the total output in the economy is less than its potential output. This is caused by a lack of aggregate demand in the economy. Option A is incorrect as Keynes believed that both wages and prices are inflexible downwards. Option C is incorrect as the concept of efficiency wages originated from other economists such as Shapiro and Stiglitz. Option D is also incorrect as Keynes believed that the economy was not self-regulating and required government intervention to restore equilibrium. Option E is incorrect as only option B is true.

Which of the Following Statements Is True