In the simple Keynesian model,an increase in aggregate demand leads to an increase in
A) Real GDP and the price level at all levels of Real GDP.
B) the price level and no change in Real GDP for levels of Real GDP below Natural Real GDP.
C) the price level and a decrease in Real GDP at all levels of GDP.
D) Real GDP and no change in the price level for levels of Real GDP below Natural Real GDP.

Question

Quizplus · Accepted Answer

In the simple Keynesian model, an increase in aggregate demand leads to an increase in Real GDP without changing the price level when the economy is operating below its natural level of Real GDP. This is because there are idle resources (e.g., unemployment) that can be utilized to meet the higher demand without putting upward pressure on prices.

In the Simple Keynesian Model,an Increase in Aggregate Demand Leads