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) classical; taxes to push the economy back to full employment
B) Keynesian; technology to push the economy back to full employment
C) Keynesian; fiscal or monetary policy to stimulate aggregate demand
D) classical; monetary policy to stimulate aggregate demand

Question

Quizplus · Accepted Answer

Keynesian macroeconomists would argue that in times of economic slowdown, fiscal and monetary policy should be used to stimulate aggregate demand and prevent a recession. Tax cuts or government spending increases would be examples of fiscal policy measures, while decreasing interest rates or increasing the money supply would be examples of monetary policy measures. This approach would be appropriate in the given scenario, where production slowdowns are occurring and food and energy costs are increasing.

In the First Half of 2008, Food and Energy Costs