The Keynesian analysis of fiscal policy argues that:
A) fiscal policy should generally be expansionary except during periods of economic recession.
B) fiscal policy should generally be restrictive except during inflationary booms.
C) the federal budget should be balanced annually except during war.
D) the federal budget should be used to maintain aggregate demand at a level consistent with full employment.

Question

Quizplus · Accepted Answer

The Keynesian analysis suggests that fiscal policy should be used to maintain aggregate demand at a level consistent with full employment. This means that during periods of economic recession, expansionary fiscal policy may be necessary to stimulate demand and boost employment, while during inflationary booms, restrictive fiscal policy may be needed to cool down demand and prevent overheating of the economy. The idea of balancing the federal budget annually is not a central tenet of Keynesian economics.

The Keynesian Analysis of Fiscal Policy Argues That