Passage
The 1929 stock market crash in the United States, also known as the Great Crash, affected virtually every American who had a stake in the financial market. In its wake, a deep economic crisis creating political and social unrest caused the United States government to create a strict financial regulatory system that worked effectively from the 1930s through the 1960s.In the late 1930s, as experts clamored to unravel the source of this financial disaster, British economist John Maynard Keynes organized a dynamic revolution in neoclassical macroeconomics, purporting that free markets could ultimately lead to more adequate employment, rather than the normative "boom and bust" cycle of fiscal recessions and depressions in the United States. However, Keynes also supported government interference, contending that a reduction in consumer spending due to economic hardship must be adequately supplemented by government expenditure. The American economics professor Hyman Minsky joined the Keynesian cause two decades later, adding that an accumulation of debt by the national government drives an unstable economy toward crisis, especially in the nongovernment sector.Preceding the Great Crash, the financial market was already unstable, which in hindsight has proven to be one of the many warning signs for emerging crises. Regrettably, these "red flags" were not characterized until after the collapse. To prevent another crash as experienced in 1929 and, to a lesser extent in 2008, changes must be made as financial markets expand and become more intricate. Many economists agree that the mainstream theory of financial markets, which is the foundation of support for the archaic New Financial Architecture (NFA), must be replaced by the realistic economic theories proposed by Keynes and Minsky. In opposition to singular market ownership, Keynesian economics points to a macroeconomic system wherein a "mixed economy" places the bulk of financial responsibility on households, to be supplemented by governmental spending when necessary. However, NFA regulations tout the practice of "business as usual," allowing the market to cycle in and out of recessions.Progress has been made toward overall reform, however slowly. A January 2009 report from the Comptroller General's Office to the United States Congress was delivered in hopes of shaping potential regulatory reform efforts. These efforts "seek to: 1) describe how regulation has evolved in banking, securities, thrifts, credit unions, futures, insurance, secondary mortgage markets and other important areas; (2) define several key changes in the financial sector in recent decades that have highlighted significant limitations and gaps in the existing regulatory system; and (3) present an evaluation framework that can be used by Congress and others to restructure regulatory reform."Also, there must be a broad political mandate in support of serious financial regulatory reforms. For too long, monetary elites such as lobbyists, private bankers, and commercial investors have controlled a potentially fragile financial system. Regulation is needed for remedying market failure and protecting the economy from an imminent collapse.These conjectures are meant to replace fragmented and complex arrangements of federal and state regulations-put into place over the past 150 years-that have not kept pace with major developments in financial markets and commercial products in recent decades. Without safeguards in place, the American financial market will face a continuous ebb and flow of prosperity and may be forced to face another crisis.
-According to the passage, a Keynesian economist would recommend which of the following as an acceptable response during an economic crisis?

Question

Passage
The 1929 stock market crash in the United States, also known as the Great Crash, affected virtually every American who had a stake in the financial market.  In its wake, a deep economic crisis creating political and social unrest caused the United States government to create a strict financial regulatory system that worked effectively from the 1930s through the 1960s.In the late 1930s, as experts clamored to unravel the source of this financial disaster, British economist John Maynard Keynes organized a dynamic revolution in neoclassical macroeconomics, purporting that free markets could ultimately lead to more adequate employment, rather than the normative "boom and bust" cycle of fiscal recessions and depressions in the United States.  However, Keynes also supported government interference, contending that a reduction in consumer spending due to economic hardship must be adequately supplemented by government expenditure.  The American economics professor Hyman Minsky joined the Keynesian cause two decades later, adding that an accumulation of debt by the national government drives an unstable economy toward crisis, especially in the nongovernment sector.Preceding the Great Crash, the financial market was already unstable, which in hindsight has proven to be one of the many warning signs for emerging crises.  Regrettably, these "red flags" were not characterized until after the collapse.  To prevent another crash as experienced in 1929 and, to a lesser extent in 2008, changes must be made as financial markets expand and become more intricate.  Many economists agree that the mainstream theory of financial markets, which is the foundation of support for the archaic New Financial Architecture (NFA), must be replaced by the realistic economic theories proposed by Keynes and Minsky.  In opposition to singular market ownership, Keynesian economics points to a macroeconomic system wherein a "mixed economy" places the bulk of financial responsibility on households, to be supplemented by governmental spending when necessary.  However, NFA regulations tout the practice of "business as usual," allowing the market to cycle in and out of recessions.Progress has been made toward overall reform, however slowly.  A January 2009 report from the Comptroller General's Office to the United States Congress was delivered in hopes of shaping potential regulatory reform efforts.  These efforts "seek to: 1) describe how regulation has evolved in banking, securities, thrifts, credit unions, futures, insurance, secondary mortgage markets and other important areas; (2) define several key changes in the financial sector in recent decades that have highlighted significant limitations and gaps in the existing regulatory system; and (3) present an evaluation framework that can be used by Congress and others to restructure regulatory reform."Also, there must be a broad political mandate in support of serious financial regulatory reforms.  For too long, monetary elites such as lobbyists, private bankers, and commercial investors have controlled a potentially fragile financial system.  Regulation is needed for remedying market failure and protecting the economy from an imminent collapse.These conjectures are meant to replace fragmented and complex arrangements of federal and state regulations-put into place over the past 150 years-that have not kept pace with major developments in financial markets and commercial products in recent decades.  Without safeguards in place, the American financial market will face a continuous ebb and flow of prosperity and may be forced to face another crisis.
-According to the passage, a Keynesian economist would recommend which of the following as an acceptable response during an economic crisis?

Quizplus · Accepted Answer

Paragraph 2 shows that Keynes supported government interference, contending that "a reduction in consumer spending due to economic hardship must be adequately supplemented by government expenditure." Therefore, the government, according to Keynes, would be expected to adequately increase spending on consumer goods. (Choice A) According to the passage, Keynesian economists are generally opposed to the addition of government debt. Paragraph 2 iterates, "Minsky joined the Keynesian cause two decades later, adding that an accumulation of debt by the national government drives an unstable economy toward crisis," which means that any accumulation of debt by the national government would be undesirable in the setting of an unstable economy. (Choice C) According to the passage, it can be inferred that an acceptable response to economic crisis is an increase (not a decrease) in government spending to aid consumers or citizens with their own cost of living. Therefore, the government would spend more to supplement consumer expenditures. (Choice D) Keynes supports free markets in general. However, during economic hardship, he is a proponent of government interference. In addition, there is no evidence that would support a governmental shift to a free market economy during a financial crisis.