According to Keynesian Theory

question 24

Multiple Choice

According to Keynesian theory,

• A) sticky prices and wages do not have an effect on aggregate expenditures.
• B) because of sticky prices and wages, changes in total spending have the biggest impact on output and employment.
• C) wage and price stickiness cause output and employment to remain close to their full employment levels, even when total spending changes.
• D) wages and prices fall in the early stages of a recession even when total spending is declining.

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Definitions:

Supply Curves

An illustrative chart showing how the price of a product or service correlates with its supply during a certain period.

Law Of Supply

An increase in the price of a product will increase the quantity of it supplied; and conversely for a decrease in price.

Quantity Supplied

The quantity of a product that suppliers are ready and capable of offering for sale at a certain price during a defined timeframe.

Equilibrium Quantity

The quantity of goods or services supplied that is exactly equal to the quantity demanded at the market equilibrium price.