Which of the following characterizes Keynes' views of macroeconomics?
A) Fiscal policy should NOT be used to influence the economy.
B) The economy eventually tends toward the potential output level.
C) For the economy to reach the potential output level, the SRAS curve must shift to the right.
D) The economy could be stuck at equilibrium below the potential output level for a prolonged period.

Question

Which of the following characterizes Keynes' views of macroeconomics?  
A) Fiscal policy should NOT be used to influence the economy. 
B) The economy eventually tends toward the potential output level. 
C) For the economy to reach the potential output level, the SRAS curve must shift to the right. 
D) The economy could be stuck at equilibrium below the potential output level for a prolonged period.

Quizplus · Accepted Answer

Keynes believed that the economy could be stuck at equilibrium below the potential output level for a prolonged period, unless there was government intervention in the form of fiscal policy. He also believed that the economy did not necessarily tend towards potential output on its own, and that the SRAS curve could remain stable or shift in either direction depending on various factors.

Which of the Following Characterizes Keynes' Views of Macroeconomics