Which of the following statements is true about Keynes' macroeconomic theory?
A) Keynes agreed that the notion that the economy would achieve the potential level of output in the long run is crucial to explaining prolonged recessions.
B) Keynes dismissed the notion that the economy would achieve full employment in the long run as irrelevant in explaining prolonged recessions.
C) Keynes stressed the notion that the economy would achieve price stability in the long run only if expansionary fiscal and monetary policies were used to address recessions.
D) Keynes argued that the economy would achieve full employment in the long run because of wage and price flexibility.

Question

Quizplus · Accepted Answer

Keynes believed that the economy may not automatically achieve full employment in the long run and that government intervention through expansionary fiscal and monetary policies was necessary to address prolonged recessions. This is in contrast to the classical economic theory, which argued that the economy would eventually reach full employment through wage and price flexibility. Therefore, option B is the correct statement. Option A erroneously suggests that Keynes agreed with the classical theory, while option C is only partially true as Keynes did stress the need for expansionary policies but did not necessarily tie them exclusively to price stability. Option D is a misrepresentation of Keynes' beliefs as he did not view wage and price flexibility as sufficient to achieve full employment.

Which of the Following Statements Is True About Keynes' Macroeconomic