Under this model, all the firms are taken as grocery stores, where they pre-set the price range and sell the amount they think the customers will buy. They increase their prices if they continuously keep selling a larger amount than they perceived to have sold. Likewise, they reduce the price range if they constantly go about selling a much lesser amount than they were supposed to have sold in the first place. But it goes without saying that demand is the main component here, the amount they sell doesn’t depend on supply, with the prices being fixed.
Considering that the economy is one and whole and the prices are fixed in nature, two aspects come into light:
- Price level is fixed and constant
- The real GDP depends on Total Demand
The Keynesian Model offers that change in the quantity of overall demand, when the price is fixed in nature, by categorizing the factors which determines expenditure plans.
Links of Previous Main Topic:-
- Definition of Economics
- Economic Problem
- Expenditure Multiplier Know the Keynesian Model
- Fixed Prices and Expenditure Plans
Links of Next Macroeconomics Topics:-
- Expenditure Plans
- Consumption as a Function of Real GDP
- Import Function
- Real GDP with A Fixed Price Level
- Actual Expenditure Planned Expenditure and Real GDP
- Convergence to Equilibrium
- Multiplier
- The Basic Idea of the Multiplier
- The Multiplier Effect
- Why Is the Multiplier Greater Than 1
- The Size of the Multiplier
- Imports and Income Taxes
- The Multiplier Process
- Business Cycle Turning Points
- The Multiplier and the Price Level
- Adjusting Quantities and Prices
- Aggregate Expenditure and Aggregate Demand
- Deriving the Aggregate Demand Curve
- Changes in Aggregate Expenditure and Aggregate Demand
- Equilibrium Real GDP and the Price Level
- Expenditure Multiplier Know the Keynesian Model
