The possibility that an economy in recession may be afflicted by monetary impotence led Keynes and his followers to recommend
A)raising real balances by letting the price level fall rather than increasing the nominal money supply.
B)raising real balances by increasing the nominal money supply rather than waiting for the price level to fall.
C)an active fiscal policy to shift the IS and AD curves.
D)waiting for a falling price level to activate the real balance effect on the IS and AD curves.

Question

Quizplus · Accepted Answer

Keynes and his followers recommended an active fiscal policy to shift the IS (Investment-Saving) and AD (Aggregate Demand) curves as a way to combat economic recessions, especially in situations where monetary policy might be ineffective (monetary impotence). This approach involves government spending and tax policies to influence economic activity.

The Possibility That an Economy in Recession May Be Afflicted