Answer to Question #270169 in Macroeconomics for Wendy

Question

Which one of the following statements about the simple Keynesian (2) macroeconomic model is correct?

(1) Supply creates its own demand;

(2) Equilibrium can occur at any level of income, not only the full-

employment level;

(3) The model can be used to study inflation; (4) Wages and prices are variable.

Answer 1

Ans: (4) Wages and prices are variable.

Keynesian economics is a macroeconomic economic theory of total spending in the economy and its effects on output, employment, and inflation.

Keynesian economics is based on two main ideas. First, aggregate demand is more likely than aggregate supply to be the primary cause of a short-run economic event like a recession. Second, wages and prices can be sticky, and so, in an economic downturn, unemployment can result.