In the Keynesian model,if the actual price level is higher than the expected price level,then
A)output is above potential output.
B)output is always at potential output.
C)output is below potential output.
D)output is moving towards potential output.

Question

Quizplus · Accepted Answer

In the Keynesian model, if the actual price level is higher than the expected price level, then firms will produce less output than they would if the price level were at the expected level. This is because firms will be expecting to receive less revenue for their output, and so they will be less willing to produce. As a result, output will be below potential output.

In the Keynesian Model,if the Actual Price Level Is Higher