Why are Keynesian policies ineffective at combating stagflation?
A) because stagflation is caused by budget surpluses
B) because stagflation is caused by decreases in aggregate supply
C) because stagflation is caused by trade deficits
D) because stagflation is caused by trade surpluses

Question

Why are Keynesian policies ineffective at combating stagflation?  
A) because stagflation is caused by budget surpluses 
B) because stagflation is caused by decreases in aggregate supply 
C) because stagflation is caused by trade deficits 
D) because stagflation is caused by trade surpluses

Quizplus · Accepted Answer

Stagflation is typically characterized by both high inflation and high unemployment, a phenomenon that is thought to arise from a simultaneous decrease in aggregate supply and aggregate demand. Keynesian policies, which aim to increase aggregate demand through government spending and monetary intervention, may be effective in combating high unemployment during normal economic downturns but are less effective at combating stagflation because they do not directly address the underlying supply-side problem. In fact, policies aimed at increasing aggregate demand during periods of high inflation may actually exacerbate the problem by further driving up prices without addressing the root cause of the issue.

Why Are Keynesian Policies Ineffective at Combating Stagflation