Keynesian economics believed that in the short-term prices were practically fixed. As a result, the Keynesian multiplier model was of no use in the 1970's when inflation was rampant. Market forces cannot automatically adjust for inflation if the Keynesian model does not account for it. The multiplier model addressed output fluctuations, not price fluctuations. The model believed recessions would be more prevalent than a depression. Keynesian economists also believed that a reduction in output also led to increased unemployment. This was because less output led to less business revenue, which led to lay offs. Less people in the...
Keynesian economics believed that in the short-term prices were practically fixed. As a result,