Question

Explain why proponents of Keynesian economics believe that it is unlikely for wages and prices to decrease, even if cyclical unemployment is high, and therefore the best remedy to correct a recessionary gap is through stimulating AD. How can just a little bit more of extra spending in the economy lead to a much greater impact on real GDP produced

Answer 1

The Keynesian economics believe that it is unlikely for wages and prices to decrease, even if cyclical unemployment is high because of these beliefs:

• Money illusion
• Minimum wage law
• Employment contract

Increased government spending in most cases do bring about aggregate demand (AD which can result in greater  growth in the short-term.

What is the belief of Keynesian economics ?

Keynesians  have the belief that prices are somewhat rigid and can  fluctuations  with respect to spending.

These spending could be :

• consumption
• investment
• government expenditures

Learn more about Keynesian economics on:

https://brainly.com/question/14223529

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