The goods market adjusts to an equilibrium right at the point of the Keynesian cross. Why?
A) At that point, the Keynesian theory of sticky prices is correct.
B) At only that point, total spending is equal to total production.
C) At only that point, consumers are fully satisfied and firms have maximized profits.
D) At only that point, the unemployment rate is zero and workers need not seek higher wages.

Question

Quizplus · Accepted Answer

The goods market adjusts to an equilibrium right at the point of the Keynesian cross because at that point, total spending (aggregate demand) is equal to total production (aggregate supply). This means that there is neither excess demand nor excess supply in the market, which leads to stable prices and output. This is the essence of the Keynesian theory of equilibrium in the goods market, which emphasizes the importance of maintaining aggregate demand to ensure full employment of resources. The other options do not provide a satisfactory explanation for why the goods market adjusts to an equilibrium at the Keynesian cross.

The Goods Market Adjusts to an Equilibrium Right at the Point