Asked by Henil Deepak Patel on Jun 04, 2024
Verified
According to Keynes,lengthy recessions can occur because
A) nominal wages fall rapidly when there is a decrease in aggregate demand,which leaves workers with less income to spend.
B) the stock market tends to overreact to economic forecasts.
C) there is significant downward rigidity in prices and wages.
D) None of the choices are correct.
Downward Rigidity
A circumstance in which wages or prices are resistant to decrease even in conditions where economic theory suggests they should fall.
Recessions
A temporary downturn in the economy marked by decreased trade and industrial production, typically recognized by a decrease in Gross Domestic Product (GDP) for two consecutive quarters.
- Understand the consequences of adopting Keynesian economic principles for handling economic downturns and depressions.
Verified Answer
GS
Gurdeep Singh-GuriJun 09, 2024
Final Answer :
C
Explanation :
According to Keynes, lengthy recessions can occur because there is significant downward rigidity in prices and wages. This means that prices and wages do not adjust quickly to changes in aggregate demand, which can prolong recessions. Option A is not entirely correct, as Keynes did not believe that nominal wages fall rapidly during a recession. Option B is not correct, as the stock market is not a significant factor in Keynesian economics. Option D is not correct, as there is a correct choice.
Learning Objectives
- Understand the consequences of adopting Keynesian economic principles for handling economic downturns and depressions.
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