In the simple Keynesian framework, the price level
A) is fixed.
B) varies directly with unemployment.
C) varies inversely with wages.
D) is indeterminate.

Question

Quizplus · Accepted Answer

In the simple Keynesian framework, the price level is assumed to be fixed in the short run, and changes in economic output are accomplished by changes in aggregate demand rather than changes in prices. This is because the Keynesian model assumes that prices and wages do not adjust instantly to changes in demand, leading to output being determined by the level of aggregate demand.

In the Simple Keynesian Framework, the Price Level