For Keynes, changes in aggregate demand had their greatest impact:
A)on the aggregate price level.
B)in the long run.
C)on the aggregate output level.
D)equally on the aggregate output level and the aggregate price level.

Question

Quizplus · Accepted Answer

According to Keynesian economics, changes in aggregate demand have the greatest impact on the aggregate output level in the short run due to the existence of involuntary unemployment and underutilized resources. This is because changes in demand influence the level of production and employment in the economy, which in turn affects the level of income and spending. In the long run, however, changes in aggregate demand may have limited impact on the aggregate output level, as the economy may adjust to full employment equilibrium.

For Keynes, Changes in Aggregate Demand Had Their Greatest Impact