Keynesian analysis implies that potential output and price stability can be achieved if
A) the federal budget is balanced annually.
B) marginal tax rates are kept low so the incentive to produce will be strong.
C) aggregate demand is equal to the economy's full-employment rate of output.
D) current saving exceeds the level of investment.

Question

Quizplus · Accepted Answer

According to Keynesian analysis, potential output and price stability can be achieved if aggregate demand is equal to the economy's full-employment rate of output. This is because if demand exceeds the economy's capacity to produce, it can lead to inflation, while if demand is below the economy's capacity to produce, it can lead to unemployment and underutilization of resources. Therefore, managing aggregate demand is key to achieving both potential output and price stability. The other options (A, B, and D) are not necessarily key factors in achieving these goals according to Keynesian analysis.

Keynesian Analysis Implies That Potential Output and Price Stability Can