The Difference Between the Keynesian Model and the Aggregate Demand/aggregate

question 144

Multiple Choice

The difference between the Keynesian model and the aggregate demand/aggregate supply (AD/AS) model is that the

• A) Keynesian model assumes that prices are constant.
• B) AD/AS model assumes that prices are constant.
• C) Keynesian model assumes full employment.
• D) AD/AS model assumes that equilibrium always occurs at less than full employment.

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Definitions:

Fixed Costs

Costs that do not vary with the level of output or sales, such as rent, salaries, and insurance premiums.

Internal Rate of Return

The discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero, used to evaluate the profitability of potential investments.

Accounting Basis

Refers to the method of recording accounting transactions; either on a cash basis or on an accrual basis.

Required Return

The minimum return an investor anticipates or requires from an investment to make it worthwhile.