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Question

According to Keynesian theory of income determination, at full employment, a fall in aggregate demand lead to a ___________.

A
fall in prices of output and resources
B
fall in real gross national product and employment
C
rise in real gross national product and investment
D
rise in prices of output and resources
Solution
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Correct option is A. fall in prices of output and resources
According to Keynesian theory of income determination, at full employment, a fall in aggregate demand causes a fall in prices of output and resources.
Under this model, the equilibrium level of national income is determined at a point where the aggregate demand curve intersects the aggregate supply curve.

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