Which of the following assumptions for the simple Keynesian model of a closed economy with government are correct?
a) The economy consists of households and firms only.
b) There is one government.
c) There is no foreign sector.
d) Prices and wages are fixed.
e) The stock of money supply and interest rates fluctuate.
A. a and d
B. a and c
Answer (2)
The correct assumptions for the simple Keynesian model of a closed economy with government are that there is one government, there is no foreign sector, and prices and wages are fixed. Thus, the accurate aspects differ from both option A and option B provided. There should be a consideration of the assumptions identified and a focus on evaluating which ones truly apply to the Keynesian context.
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The simple Keynesian model assumes a closed economy with one government, no foreign sector, and fixed prices and wages. Options b, c, and d accurately reflect these assumptions. Hence, the correct answer includes these three elements. ;
