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Nilanjan Bhowmick AIR 3, CSIR NET (Earth Science)
- UGC NET
- Economics
According to the keynesian model, equilibrium output of an economy may be less than the full-employment level of output because at full employment 5. (1) suffic
According to the Keynesian model, equilibrium output of an economy may be less than the full-employment level of output because at full employment 5. (1) sufficient income may not be generated to keep workers above the subsistence level (2) there might not be enough demand by firms and consumers to buy that output (3) workers may not be willing to work the hours necessary to produce the output (4) Interest rates might not be high enough to provide the incentive to finance the production
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Nidhi taparia Best Answer
The correct answer is (2). This is the typical Keynesian AD-AS framework. Less than full employment equilibrium is established when AD is less than the AS at full employment level. This leads to deflationary gap. This may be due to deficient consumption or investment.