Final answer:
In the short run, the amount of employment in the Keynesian model is determined by the effective labor demand curve and the level of output (option C).
Step-by-step explanation:
Keynesians believe that, because prices are somewhat rigid, fluctuations in any component of spending—consumption, investment, or government expenditures—cause output to change.
In the Keynesian framework in the short run, the amount of employment is determined by the effective labor demand curve and the level of output.
Firms' demand for labor is influenced by their perceptions of the macro economy; if they believe business is expanding, they will hire more labor, shifting the labor demand curve to the right.
Conversely, if they believe the economy is contracting, they will hire less labor, shifting the demand curve to the left.
This concept is tied to what is known as cyclical unemployment, which refers to the fluctuation in unemployment that occurs due to the business cycle.
In the long run, as depicted in neoclassical analysis, wages and prices become flexible, and shifts in aggregate demand primarily affect price levels rather than output, which returns to potential GDP.