According to Keynesians, which of the following is/are true?
I. Wages and prices are flexible and automatically direct an economy toward full employment.
II. Changes in output rather than changes in prices direct an economy toward equilibrium.
III. An economy can be in equilibrium even if there isn't full employment prevailing.
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A. B. C. D.D
Keynesian economics maintains that businesses produce only the quantities consistent with anticipated demand. Thus, expected aggregate expenditures are crucial to determining the state of the economy. If the planned expenditures exceed the anticipated demand, then the economy will expand and vice versa.
Equilibrium will be attained where output equals the spending level. Hence, in Keynesian economics, equilibrium can occur at any level of output and employment rate, even if that level is less than the potential GDP. Further, only changes in demand will fuel changes in output; changes in prices will not be capable of moving an economy toward equilibrium.