The simple Keynesian model assumes that
A) gross private domestic investment exceeds net investment by the capital consumption allowance.
B) prices, especially the price of wages, are "sticky downward."
C) there will never be any excess capacity in the short run.
D) aggregate demand will always equal aggregate supply.

Question

Quizplus · Accepted Answer

The simple Keynesian model assumes that prices, especially the price of wages, are "sticky downward" which means they do not adjust quickly to changes in demand or supply. This assumption is the key factor in determining the level of economic output and employment in the short run. The other options (A, C, and D) are not assumptions of the simple Keynesian model.

The Simple Keynesian Model Assumes That