The recession in real GDP in 1970 during the Nixon administration
A) did not accord with the Keynesian theory because the price level had risen sharply; in the Keynesian model, prices fell when real GDP and employment were falling.
B) reinforced the Keynesian theory that prices fell when real GDP and employment were falling.
C) did not accord with the Keynesian theory because expansionary fiscal policies resulted in deflation; in the Keynesian model, prices rose when expansionary fiscal policies were administered to eliminate a recessionary gap.
D) reinforced the Keynesian theory that fiscal policies were more effective than monetary policies in reducing output gaps.

Question

Quizplus · Accepted Answer

The statement in option A is correct. In the Keynesian model, prices were supposed to fall along with a decrease in real GDP and employment, which did not happen during the recession in 1970. Therefore, it did not accord with the Keynesian theory.

The Recession in Real GDP in 1970 During the Nixon