Question

a. the keynesian model argues that prices are sticky. one reason supporting this argument is that
oa. all unemployment is voluntary.
ob. nominal wages are flexible but real wages are not.
oc. government price ceilings.
od. nominal wages are inflexible downwards.
b. since the nominal wage is deemed inflexible, a decrease in aggregate demand causes firms to
oa. lower the real wage.
ob. increase wages to increase income so ad increases.
oc. reduce their workforce.
od. simply have all workers produce at a slower rate without any unemployment.
c. thus, according to the keynesian model full employment is

Explanation:

Part a

• Option A: In the Keynesian model, not all unemployment is voluntary. There is involuntary unemployment due to lack of aggregate demand.
• Option B: Keynesian model focuses on nominal wage rigidity. Real - wage flexibility is not the key point here.
• Option C: Government price - ceilings are not the main reason for price stickiness in the Keynesian model. The model is more about market - based rigidities.
• Option D: Keynesians argue that nominal wages are inflexible downwards. Workers resist wage cuts, and firms are reluctant to cut wages (due to efficiency - wage considerations, union contracts, etc.), which leads to price stickiness.

Part b

• Option A: A decrease in aggregate demand, with nominal wages inflexible, does not lower the real wage. If prices fall (due to lower demand) and nominal wages are fixed, real wages \(w = \frac{W}{P}\) (where \(W\) is nominal wage and \(P\) is price level) would increase.
• Option B: Firms do not increase wages when aggregate demand decreases. They aim to cut costs to maintain profitability in the face of lower demand.
• Option C: When aggregate demand decreases, and nominal wages are inflexible downwards, firms cannot easily cut labor costs by reducing wages. So, they reduce their workforce (lay off workers) to cut costs.
• Option D: Having workers produce at a slower rate without unemployment is not a practical solution for firms. Firms are profit - maximizers and will reduce the number of workers if they cannot cut wages.

Answer:

a. D. nominal wages are inflexible downwards.
b. C. reduce their workforce.