The Keynesian economic framework is based on an assumption that:

• A. markets may not always clear, leading to persistent unemployment
• B. the economy is always at full employment
• C. prices and wages are perfectly flexible in the short run
• D. government intervention is unnecessary for economic stability

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the Keynesian economic framework, which emphasizes that economies can experience periods where markets do not clear, meaning supply and demand are not always in equilibrium.
2. Step 2: Recognize that Keynesian theory challenges the classical assumption that the economy is always at full employment and that prices and wages adjust instantly to clear markets.
3. Step 3: Note that Keynesians argue prices and wages can be sticky or inflexible in the short run, preventing the labor market from clearing and causing unemployment to persist.
4. Step 4: Understand that because of these rigidities, the economy can remain below full employment without automatic self-correction, which justifies the role of government intervention to stabilize the economy.
5. Step 5: Conclude that the key assumption in Keynesian economics is that markets may not always clear, leading to persistent unemployment, which contrasts with the other options provided.