Question

In the Keynesian model, it is assumed that, when demand for a firm's product changes, the firm:

A. changes prices to meet the demand.
B. changes production levels to meet the demand.
C. changes prices and production levels to meet demand.
D. changes prices, but holds production levels constant, to meet the demand.

Answer 1

B. changes production levels to meet the demand.

Step-by-step explanation:

The Keynesian model is usually used as a theoretical approach to understand economics in the short run. For Keynes, in the short term, firms can not change their prices immediately because exist a menu cost: the cost of changing prices. Instead, firms change the unique variable that they can control: quantities.

In such way can meet the demand in the short run.