Question

Keynes believed that wages and prices were sticky. Therefore, a rightward shift of the aggregate demand curve would cause _________.

A. an increase in the unemployment level.
B. a change in the long-run aggregate supply curve.
C. a decrease in the level of income.
D. an increase in employment, production, and income.

Answer 1

(D). An increase in employment, production, and income.

Step-by-step explanation:

According to Keynes, when wages and prices are sticky, they do not respond to changes (whether increases or decreases) in demand.

Therefore, when the aggregate demand curve shifts to the right, price level remains the same due to price stickiness, however, real Gross Domestic Product (GDP) increases and this causes an increase in employment, production and income.