According to the new Keynesian approach, output fell during the early 1980s because
A)fiscal policy was sufficiently contractionary to offset an expansionary monetary policy.
B)the leftward shift of the AD curve was greater than the rightward shift of the SRAS curve.
C)consumers and businesses came to expect higher inflation, thereby causing the SRAS curve to shift to the left.
D)Congress and the President decided to raise taxes and cut spending in order to reduce the budget deficit.

Question

Quizplus · Accepted Answer

The new Keynesian approach suggests that output falls when the aggregate demand (AD) curve shifts leftward more than the short-run aggregate supply (SRAS) curve shifts rightward, indicating a decrease in overall demand relative to supply.

According to the New Keynesian Approach, Output Fell During the Early