The Keynesian assumptions of the macroeconomy include each of the following except
A) wages and prices can be "sticky" or "fixed."
B) expectations are consistent with full employment.
C) the labor market can be out of equilibrium, causing involuntary unemployment.
D) shocks to aggregate demand will change the composition and the level of GDP.

Question

Quizplus · Accepted Answer

Keynesian economics assumes that wages and prices can be sticky, meaning they do not adjust immediately to changes in economic conditions, leading to periods of involuntary unemployment (A and C are true). It also posits that shocks to aggregate demand can affect both the composition and the overall level of GDP (D is true). However, it does not assume that expectations are always consistent with full employment; instead, it acknowledges that pessimistic expectations can lead to reduced economic activity and unemployment, contradicting choice B.

The Keynesian Assumptions of the Macroeconomy Include Each of the Following