Multiple Choice
Which of the following statements best describes the concept of an automatic stabilizer in economics?
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1. Introduction to Macroeconomics
Introduction to Economics
Multiple Choice
Which of the following represents a Keynesian point of view in macroeconomics?
A
Inflation is always caused by increases in the money supply.
B
Markets are always self-correcting and reach equilibrium without outside interference.
C
Long-run aggregate supply is perfectly inelastic.
D
Government intervention is necessary to stabilize the economy during recessions.
Verified step by step guidance1
Understand the Keynesian perspective: Keynesian economics emphasizes the role of aggregate demand in influencing economic output and employment, especially in the short run.
Recognize that Keynesians argue markets do not always self-correct quickly, meaning that without intervention, economies can remain in recession or underperform.
Note that Keynesians support government intervention, such as fiscal policy (government spending and taxation), to stabilize the economy during downturns.
Contrast this with classical views that markets are always self-correcting and that inflation is solely caused by money supply increases, which Keynesians do not fully agree with.
Identify the statement that aligns with Keynesian thought: 'Government intervention is necessary to stabilize the economy during recessions.' This reflects the Keynesian belief in active policy to manage economic fluctuations.
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