In the Keynesian-cross model, what adjusts to move the economy to equilibrium following a change in exogenous planned spending?
A) planned spending
B) the interest rate
C) production
D) the price level

Question

Quizplus · Accepted Answer

In the Keynesian-cross model, equilibrium is reached when production (or GDP) equals planned spending. Therefore, following a change in exogenous planned spending, production will adjust to move the economy to equilibrium. The interest rate may also adjust, but this is not the primary mechanism for reaching equilibrium in this model. The price level is not directly related to the Keynesian-cross model.

In the Keynesian-Cross Model, What Adjusts to Move the Economy