What is the Keynesian Model?
- An economic theory focusing on the role of aggregate demand in determining economic output and employment levels
- Named after British economist, John Maynard Keynes
Assumptions for this model
- Wages weren’t as flexible as classical model suggested because of labor unions and contracts
- Argues that the minimum wage sets up the price floor
- Argues that changes in aggregate demand do not change the price level
- Believes that government intervention is necessary
- Proposed the concept of the multiplier effect, suggesting that an initial increase in spending leaves to overall increase in economic output
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