In the 1970s the U.S. economy experienced a novel set of macroeconomic outcomes: rising Jprice level and falling output. This experience led policymakers to
A) aggregate demand was more important than aggregate supply in determining the economy's output level.
B) acknowledge that monetary policy and aggregate supply play a role in influencing macroeconomic performance.
C) conclude that fiscal policy alone was enough to stabilize the economy.
D) conclude that being a vital input, oil prices should be controlled by the government.

Question

Quizplus · Accepted Answer

The rising price level and falling output challenged the traditional Keynesian view that fiscal policy alone could stabilize the economy. Policymakers recognized the need to also consider the effects of monetary policy and aggregate supply on the economy. This led to the development of new macroeconomic theories such as supply-side economics.