Which of the following is true of the simple Keynesian model?
A)Price level increases with increase in aggregate demand
B)The aggregate supply curve is assumed to be perfectly inelastic
C)The aggregate demand curve is assumed to perfectly elastic
D)Price level is solely determined by the aggregate demand curve
E)Changes in aggregate demand determine equilibrium real GDP

Question

Quizplus · Accepted Answer

In the simple Keynesian model, changes in aggregate demand determine equilibrium real GDP. The model assumes a fixed aggregate supply curve and imperfect price flexibility, which means that changes in aggregate demand will affect output (real GDP) more than prices. Therefore, the answer is not A, B, C, or D, as none of these choices accurately reflect the assumptions or implications of the model.

Which of the Following Is True of the Simple Keynesian