The original Keynesian economic theory states that
A) the short-run aggregate supply (SRAS) curve is always vertical.
B) many prices would not decline even when aggregate demand decreases.
C) wages tend to fall more quickly than the overall price level.
D) the economy naturally self-regulates so as to reach full employment quickly.

Question

Quizplus · Accepted Answer

Keynesian economics argues that prices in the economy are "sticky" and do not adjust quickly to changes in aggregate demand, meaning that even if aggregate demand decreases, many prices would not decline. This can lead to unemployment and a recession, which can be mitigated through government intervention. The other options are incorrect - the SRAS curve can be upward sloping in the short run, wages are not expected to fall more quickly than the overall price level, and the theory does not assume that the economy self-regulates quickly to reach full employment.

The Original Keynesian Economic Theory States That