Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should:
A) Cut taxes and/or increase government spending.
B) Cut taxes and/or reduce government spending.
C) Raise taxes and/or increase government spending.
D) Raise taxes and/or reduce government spending.

Question

Quizplus · Accepted Answer

Keynes believed that during a recession, there is a lack of demand in the economy, and this can lead to unemployment and further decrease in demand. To boost demand, Keynes suggested that policymakers should increase government spending or cut taxes, which would put more money into the hands of consumers and businesses and stimulate spending. This is known as expansionary fiscal policy. Therefore, choice A is the best choice as it aligns with Keynesian theory.

Keynes Viewed the Economy as Inherently Unstable and Suggested That