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

Question

Quizplus · Accepted Answer

Stagflation is caused by a decrease in aggregate supply, which means that the economy is facing higher inflation and lower economic growth. Keynesian policies, such as increasing government spending or reducing taxes to boost aggregate demand, can only be effective when the economy faces a recession with high unemployment and low inflation. However, in cases of stagflation, traditional Keynesian policies can lead to further inflation without increasing economic growth. Thus, Keynesian policies are ineffective in combating stagflation.

Keynesian Policies Are Ineffective at Combating Stagflation Because Stagflation Is