Which of the following policy prescriptions for overcoming a depression is most closely associated with John Maynard Keynes?
A) He believed that a serious economic contraction is a natural phase in an otherwise healthy system, and thus no intervention is needed during a depression.
B) He advocated for tax increases in order to balance the federal government's budget during the Great Depression.
C) He advocated for a decrease in the money supply to stabilize the economy during the Great Depression.
D) He argued that increased government demand should offset reduced private sector demand in order to prevent depression.

Question

Which of the following policy prescriptions for overcoming a depression is most closely associated with John Maynard Keynes?  
A) He believed that a serious economic contraction is a natural phase in an otherwise healthy system, and thus no intervention is needed during a depression. 
B) He advocated for tax increases in order to balance the federal government's budget during the Great Depression. 
C) He advocated for a decrease in the money supply to stabilize the economy during the Great Depression. 
D) He argued that increased government demand should offset reduced private sector demand in order to prevent depression.

Quizplus · Accepted Answer

John Maynard Keynes believed in the use of fiscal policy, including increased government spending and tax cuts, to stimulate demand and prevent or overcome a depression. He argued that during a depression, private sector spending decreases, leading to a decrease in overall demand, and that the government must step in to increase demand to prevent further contraction of the economy. This approach is known as Keynesian economics.

Which of the Following Policy Prescriptions for Overcoming a Depression