In the Keynesian aggregate expenditure model,prices are assumed to be fixed because:
A) unemployment is low.
B) resources are idle (underutilized).
C) consumption and disposable income are closely related.
D) the government heavily intervenes in the economy.

Question

Quizplus · Accepted Answer

The Keynesian aggregate expenditure model assumes that prices are fixed because resources are assumed to be underutilized or idle. This means that there is excess capacity in the economy, and firms have the ability to increase output without raising prices. As a result, changes in aggregate demand will primarily result in changes in output, rather than changes in prices.

In the Keynesian Aggregate Expenditure Model,prices Are Assumed to Be