The Keynesian theory is consistent with the business cycle fact that inflation is
A)procyclical and leading.
B)procyclical and lagging.
C)countercyclical and leading.
D)countercyclical and lagging.

Question

Quizplus · Accepted Answer

The Keynesian theory argues that government intervention can stabilize the economy during business cycles. In this context, Keynesians believe that inflation is procyclical and lagging. This means that inflation tends to rise during the expansion phase of the cycle and fall during the contraction phase, but with a time lag. Specifically, inflation only begins to decline after the economy has already entered a recession. Therefore, the best choice is B.

The Keynesian Theory Is Consistent with the Business Cycle Fact