Question

In the Keynesian framework, an increase in desired demand sets off which chain of effects?

Options

• More goods and services sold → more output → more workers employed → higher national income

• Higher prices → reduced output → lower employment → lower income

• More savings → higher interest rates → lower investment

• Lower wages → fewer workers employed → lower output

Answer 1

Higher desired demand means more goods and services are sold. Firms respond by producing more output and employing more workers, which results in higher national income. This transmission chain is the core mechanism of Keynesian income determination.