A market failure associated with Keynesian economics is
A) pollution externalities.
B) economic agents cannot agree on prices and wages that are socially efficient.
C) insurance is imperfect.
D) banking panics.

Question

Quizplus · Accepted Answer

Keynesian economics emphasizes the importance of government intervention in addressing market inefficiencies, particularly during times of economic downturns. One of the main problems Keynesian theory seeks to address is market failures arising from price and wage rigidity, which prevent the economy from achieving full employment and output levels. When prices and wages remain fixed, economic agents cannot adjust to changes in aggregate demand, leading to recessions or inflationary pressures. Therefore, Keynesian policies such as government spending and taxation can help stabilize the economy by injecting demand into the system, thereby reducing unemployment and improving economic growth. However, the effectiveness of such policies depends on the ability of policymakers to accurately diagnose the underlying market failures and implement appropriate interventions.

A Market Failure Associated with Keynesian Economics Is