Suppose the economy suffers a high rate of inflation. According to Keynesian economists, the government should decrease employment by
A) increasing money supply.
B) balancing the budget.
C) not doing anything.
D) decreasing government spending.

Question

Quizplus · Accepted Answer

According to Keynesian economists, in the event of high inflation, the government should decrease government spending to reduce aggregate demand and combat inflationary pressures. This reduction in spending would lead to a decrease in employment as government-funded programs and projects are scaled back. Increasing money supply (choice A) would only exacerbate inflation, and balancing the budget (choice B) may not be a priority in the short term if inflation is causing significant economic harm. Doing nothing (choice C) would also allow inflation to continue unchecked.

Suppose the Economy Suffers a High Rate of Inflation