Discussion
Which of the following statements does not hold true in case of the Keynesian Economics ?
Answer: D
The statement that does not hold in Keynesian economics is that the aggregate supply schedule is vertical, with output and employment completely supply determined. That is the classical case, where full employment output is fixed by factor supplies and demand affects only the price level. Keynes held that supply is flat at levels of output well below full employment and turns steeper as capacity is approached, which is option C. Option A is consistent with Keynes because the velocity of money varies with the interest rate and expectations. Option B is consistent because Keynesian labour supply responds to money wages, which is money illusion.
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