In the Keynesian model,supply adjusts passively to demand in the short run because
A) of Say's law.
B) the equilibrium level of output automatically adjusts to the full-employment level.
C) actual saving equals actual investment at all times.
D) both consumption and investment respond to changes in interest rates when the aggregate supply curve is vertical.
E) high levels of unemployment keep wages and prices stable.

Question

Quizplus · Accepted Answer

In the Keynesian model, the assumption is that in the short run, due to high levels of unemployment, wages and prices do not adjust immediately to changes in demand. This leads to a situation where supply can be considered to adjust passively to changes in demand, as firms will increase or decrease production based on the demand for their products without immediate changes in wages and prices.

In the Keynesian Model,supply Adjusts Passively to Demand in the Short