The basic Keynesian model explains how a decrease in planned aggregate expenditure in the short run can cause a(n)________ as producers cut production at preset prices to meet the lower demand and actual output ________ the potential output.

Question

Quizplus · Accepted Answer

In the basic Keynesian model, a decrease in planned aggregate expenditure leads to a decrease in output, as producers cut production at preset prices to meet the lower demand. This results in a recessionary gap, where actual output falls below potential output. Therefore, option B is the correct answer.

The Basic Keynesian Model Explains How a Decrease in Planned