Keynesian policies are ineffective at combating stagflation because stagflation is caused by:
A)budget surpluses.
B)decreases in aggregate supply.
C)trade deficits.
D)decreases in aggregate demand.
E)budget deficits.

Question

Quizplus · Accepted Answer

Stagflation is caused by a decrease in aggregate supply, which means that prices are rising while output is decreasing. Keynesian policies focus on increasing aggregate demand, which may lead to inflationary pressures and exacerbate stagflation. Therefore, Keynesian policies are ineffective in combating stagflation.

Keynesian Policies Are Ineffective at Combating Stagflation Because Stagflation Is