In the first half of 2008, food and energy costs in the United States increased. At the same time, the financial crisis slowed production as firms predicted lower profits. A macroeconomist would support the use of _ .
A) Keynesian; fiscal or monetary policy to stimulate aggregate demand
B) classical; monetary policy to stimulate aggregate demand
C) Keynesian; technology to push the economy back to full employment
D) classical; taxes to push the economy back to full employment

Question

Quizplus · Accepted Answer

The situation described in the prompt suggests that the economy is facing a demand-side shock, with higher inflation and lower production. In this context, a Keynesian approach that aims to stimulate aggregate demand through fiscal or monetary policy would be more appropriate than a classical approach that focuses on supply-side issues. Fiscal policy could involve government spending on infrastructure or welfare programs, while monetary policy could involve lower interest rates or quantitative easing to increase access to credit and boost consumption and investment.

In the First Half of 2008, Food and Energy Costs