According to the Keynesian view, if policy makers thought the economy was about to fall into a recession, which of the following would be most appropriate?
A) a reduction in government expenditures and/or an increase in taxes
B) an increase in government expenditures and/or a reduction in taxes
C) make no policy changes because market forces will assure the maintenance of full employment.
D) maintain a balanced budget

Question

Quizplus · Accepted Answer

According to Keynesian economics, during a recession, aggregate demand falls below the level needed to maintain full employment. To bring the economy back to full employment, policy makers should use expansionary fiscal policy by either increasing government spending or reducing taxes, or a combination of both. This will increase aggregate demand and stimulate economic growth. Option A is contractionary fiscal policy and will only exacerbate the recession. Option C is incorrect as Keynesians believe in the use of active government intervention to stabilize the economy. Option D is also incorrect as maintaining a balanced budget during a recession can be detrimental to economic growth.

According to the Keynesian View, If Policy Makers Thought the Economy