In the simple Keynesian model,
A)Inflation becomes a problem only if demand increases at full employment.
B)Inflation is a problem whenever demand increases.
C)Inflation is never a problem.
D)Inflation is a problem whenever demand decreases.

Question

Quizplus · Accepted Answer

In the simple Keynesian model, as long as there is unused capacity in the economy, an increase in demand will result in an increase in production and employment rather than inflation. Inflation becomes a problem only when the economy reaches full employment, and any additional demand will lead to rising prices without any increase in output. Therefore, option A is the best choice.

In the Simple Keynesian Model