Conservatives and Keynesians differ on the appropriate response of the government to a recession. Which of the following is a true statement?
A) Keynesians believe that governments should increase spending to make up for a deficiency of aggregate demand.
B) Keynesians believe that governments should intervene in the economy only in the case of an outside shock.
C) Keynesians believe that governments do not need to intervene, because the economy is always in equilibrium.
D) Keynesians believe that governments can prevent an outside shock.

Question

Quizplus · Accepted Answer

Keynesians advocate for government intervention during a recession by increasing spending to stimulate aggregate demand, thereby increasing economic activity. Conservatives, on the other hand, believe that the government should not intervene and instead allow market forces to correct the downturn. Choice B is incorrect, as Keynesians do not limit government intervention to only an outside shock. Choice C is also incorrect, as Keynesians believe that the economy can fall out of equilibrium during a recession. Choice D is incorrect, as while the government may be able to take steps to mitigate the effects of an outside shock, they cannot necessarily prevent it from happening.

Conservatives and Keynesians Differ on the Appropriate Response of the Government