Which of the following describes the Keynesian approach to the business cycle?
I. Unanticipated shocks to aggregate supply drive expansions and recessions.
II. The Keynesian theory is a real business cycle model of the economy.
III. A decrease in business confidence can trigger a recession.
A) I only
B) I and II
C) II and III
D) III only

Question

Quizplus · Accepted Answer

The Keynesian approach attributes business cycles primarily to changes in aggregate demand, particularly changes in investment spending and consumer confidence. A decrease in business confidence triggering a recession is consistent with this approach. Option I describes the supply shock explanations for business cycles often associated with the real business cycle theory. Option II suggests a feature of the real business cycle theory, not the Keynesian approach.

Which of the Following Describes the Keynesian Approach to the Business