Unlike in the long-run model, in the short-run Keynesian model, we make two critical assumptions: that firms adjust production depending on _______, and that _______.
A) total demand; prices are fixed
B) resource limitations; prices are flexible
C) the market rate of interest; consumers maximize utility
D) consumer spending; there is full employment

Question

Quizplus · Accepted Answer

In the short-run Keynesian model, firms adjust production depending on total demand, as they aim to meet the current level of demand from consumers. However, prices are assumed to be fixed in the short-run, as opposed to flexible in the long-run model. This means that changes in demand will impact output and employment, as opposed to prices in the short-run.

Unlike in the Long-Run Model, in the Short-Run Keynesian Model