Question

John Maynard Keynes believed that wages may be inflexible in the downward direction. Consequently, an economy:

a. Could get stuck in long-run equilibrium.
b. Could get stuck in a recessionary gap.
c. Could get stuck in an inflationary gap.
d. Would always produce more than Natural Real GDP.
e. b and c

Answer 1

b. Could get stuck in a recessionary gap.

Step-by-step explanation:

Recessive gap: It is the amount by which the potential GDP exceeds the real GDP, this happens either because the economy has suffered a recession or because the real GDP growth has been slower.

The Keynesian model is an economic theory developed by John Maynard Keynes through an economic model, which fundamentally demonstrates the relationship between the level of employment or employment and the level of income.

The Keynesian model is developed in an era in which economic theory was dominated by classical thinking. The main classic assumptions about the theory of occupation and employment were that the economy tends towards a position of equilibrium with full employment.