According to John Maynard Keynes, which one of the following statements is correct for a closed economy operating at less than the full employment level of output?
Tap an option to check your answer.
2 marks, −0.667MacroeconomicsKeynesian cross and the multiplierKeynesian cross equilibriumModerateabout 1 min
IIT JAM 2021 Question 28: Keynesian cross and the multiplier
Answer and worked solution
Answer: (B)
In the Keynesian model, autonomous investment raises income through the multiplier, and income adjusts until saving equals investment. So investment drives saving, not the reverse.
The answer is (B). Speculative money demand depends on the interest rate, not output, and money is not neutral below full employment, so the other options are wrong.
The trap: (A) Savings determines investment
The classical view has saving determine investment through the loanable-funds market; Keynes reverses this, with investment determining saving via income.
Keynesian cross and the multiplier has come up 167 times in 7 exams since 2006.
What this question tests
This question is on Keynesian cross equilibrium, part of Keynesian cross and the multiplier in Macroeconomics.
How income is determined when output adjusts to planned spending, and what happens to unplanned inventories.
TestStop has 35 past-paper questions on this subtopic; the nearest in year are below.
Question from the IIT JAM 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.