Which of the following is the most Fundamental Assumption behind the Keynesian Aggregate Expenditure Model?
Which of the following is the most Fundamental Assumption behind the Keynesian Aggregate expenditure model? The correct answer is prices in the economy are fixed
by J Nandhini
Updated Oct 30, 2023
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Which of the following is the most Fundamental Assumption behind the Keynesian Aggregate Expenditure Model?
A) Unknown
B) Unrelated
C) Fixed
D) Flexible
The Correct answer is D) Flexible
The most fundamental assumption behind the Keynesian Aggregate Expenditure Model is that prices in the economy are fixed. This means it assumes that prices of goods and services do not change in response to changes in demand or supply.
What is the Keynesian Aggregate Expenditure Model?
The Keynesian model is like a picture that helps us understand how the money spent in a country affects the things it makes. This idea was thought up by a smart economist named John Maynard Keynes from Britain.
In the model, we look at two things: how much money is spent (up and down on the picture) and how much stuff the country makes (side to side on the picture). When these two things are equal, we say the economy is balanced.
The model helps us figure out the level of stuff a country makes when the money spent matches the stuff produced. This is important because it tells us how many jobs there will be.
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