Question

According to the simple Keynesian model, an economy's total income in the short run depends on:

Options

• The long-run growth of productive capacity

• The level of taxation alone

• The quantity of money in circulation

• Desired aggregate demand or aggregate spending of people

Answer 1

The simple Keynesian model holds that in the short run, an economy's total income depends on desired aggregate demand or aggregate spending of people. When people desire to spend more, more goods and services are sold, raising output, employment, and national income.