According to the Keynesian model, which of the following policies would be most appropriate during a period of rapid inflation?
A) a tax cut
B) a budget deficit
C) a budget surplus
D) an increase in the money supply

Question

Quizplus · Accepted Answer

According to the Keynesian model, during a period of rapid inflation, the government should decrease aggregate demand. The best way to do this is through fiscal policy, specifically a budget surplus. This means cutting spending and increasing taxes, which reduces consumers' disposable income and spending, thus reducing aggregate demand and ultimately reducing inflation.

According to the Keynesian Model, Which of the Following Policies