The Keynesian model provides no simple fiscal solution to
A) a situation of high unemployment and low inflation.
B) a situation of low unemployment and high inflation.
C) a situation of high unemployment and high inflation.
D) a situation of low unemployment and low inflation.

Question

Quizplus · Accepted Answer

The Keynesian model suggests that in a situation of high unemployment and high inflation (also known as stagflation), there is no simple fiscal solution. This is because traditional fiscal policies such as government spending and tax cuts may lead to further inflation, while tightening fiscal policies such as reducing government spending may lead to higher unemployment. Therefore, alternative policies such as monetary policy or supply-side policies may need to be considered. The other options listed have potential fiscal solutions according to the Keynesian model.

The Keynesian Model Provides No Simple Fiscal Solution to