In the simple Keynesian model, Multiple Choice Inflation becomes a problem only if demand increases at full employment. Inflation is a problem whenever demand increases. Inflation is never a problem. Inflation is a problem whenever demand decreases.

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Lesly Butler

Business

23 August, 15:21

In the simple Keynesian model, Multiple Choice Inflation becomes a problem only if demand increases at full employment. Inflation is a problem whenever demand increases. Inflation is never a problem. Inflation is a problem whenever demand decreases.

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Ansley Weaver · Answer 1

In the simple Keynesian model, inflation becomes a problem only if demand increases at full employment.

Explanation:

In the Keynesian view, price inflation is mainly the result of relative changes in supply and demand, which lead to price changes. Changes in the money supply have no direct influence here. According to this school, the money supply is the result of money creation by the banking system; but this plays only a limited role in the process.

In this vision, a distinction is made between:

- Demand inflation: Inflation occurs when the aggregated demand for goods and services increases, with an initially constant supply.

-Cost inflation: Inflation occurs if there is a sudden decrease in supply when demand remains the same.