Chapter 35, Problem 1MCQ

To determine

The correct option for Keynesian economics

Answer to Problem 1MCQ

From the available options, the correct option is it focuses on short-run changes in aggregate demand.

Explanation of Solution

According to Keynesian economics, variations in short-run aggregate demand impact the aggregate output which specifies that the prices can rigid as changes in any aspect of spending, whether government, investment, or consumer spending, they affect the output to change. It means this model focuses on short-run changes in aggregate demand not on changes in aggregate supply. Politicians used this model to recover from depression but it was not created for World War. And, there is no meaning of the option that relates this model by specifying an idea that all dead in the short-run.

Therefore, the correct option is d (it focuses on short-run changes in aggregate demand) and all other options are incorrect.

Economics Concept Introduction

Introduction: According to Keynesian economics, the rigidity in levels of price can fluctuate other components such as spending, investment, consumption by affecting the output level.