Keynes thought that one macroeconomic problem is that the economy
A)can tend toward an equilibrium level of output that is below the potential level
B)tends toward a potential level of output that is below the equilibrium level
C)makes the potential and equilibrium levels of output equal
D)can be pushed below the equilibrium level of output by fiscal policy
E)can be pushed below the potential level of output by fiscal policy

Question

Quizplus · Accepted Answer

Keynes believed that the economy could experience a situation where the equilibrium level of output is below its potential level due to insufficient aggregate demand. This can lead to unemployment and a decline in the overall economic activity. Keynes advocated for government intervention in such situations to stimulate demand through fiscal policy.

Keynes Thought That One Macroeconomic Problem Is That the Economy