In the simple Keynesian model of the private economy, which of these is assumed?
A) The consumer price index can rise or fall.
B) Households and firms are savers.
C) The aggregate price level can change.
D) There is considerable slack in the economy.

Question

Quizplus · Accepted Answer

In the simple Keynesian model, it is assumed that there is considerable slack in the economy, meaning that there are unused resources, particularly labor, which can be mobilized to increase production without causing inflation. This contrasts with assumptions about changing price levels or the roles of households and firms as savers, which are not central assumptions of the model.

In the Simple Keynesian Model of the Private Economy, Which