The Keynesian view implies that there is a role for monetary and fiscal policy in stabilizing the economy in response to aggregate shocks because
A)money is neutral.
B)business cycles have many causes.
C)these policies are highly effective in raising total factor productivity.
D)prices and wages are slow to clear markets.
E)comovement of aggregate variables does not generally happen during the business cycle.

Question

Quizplus · Accepted Answer

The Keynesian view emphasizes the role of prices and wages in adjusting to market clearing levels, which can be slow in practice. As a result, there can be substantial temporary unemployment and output fluctuations in response to aggregate shocks. Monetary and fiscal policy can potentially help stabilize the economy by addressing these short-term fluctuations.

The Keynesian View Implies That There Is a Role for Monetary