Multiple Choice
When there is inflation in the economy, which of the following would be a smart decision?
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1. Introduction to Macroeconomics
Introduction to Economics
Multiple Choice
Which of the following is the central argument of Keynesian economic theory?
A
Long-run economic growth is determined solely by technological progress.
B
Markets are always efficient and self-correcting without any need for government involvement.
C
Inflation is always caused by excessive growth in the money supply.
D
Government intervention can help stabilize the economy during periods of recession or inflation.
Verified step by step guidance1
Step 1: Understand the core focus of Keynesian economic theory, which emphasizes the role of aggregate demand in influencing economic output and employment, especially in the short run.
Step 2: Recognize that Keynesians argue markets do not always self-correct efficiently, particularly during recessions, leading to prolonged periods of unemployment or underutilized resources.
Step 3: Identify that Keynesian theory supports the idea that government intervention, through fiscal policy (like government spending and taxation), can help stabilize the economy by boosting aggregate demand when private demand is insufficient.
Step 4: Contrast this with other economic views, such as classical economics, which stress long-run growth driven by technological progress and market self-correction without government interference.
Step 5: Conclude that the central argument of Keynesian economics is that active government policies are necessary to manage economic fluctuations and stabilize output and employment.
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