Keynes thought that one macroeconomic problem is that
A)the potential and equilibrium levels of output can be the same
B)the equilibrium level of output can never be equal to the potential level
C)over time,the potential level of output may be pulled down to the equilibrium level
D)the potential level of output can fall below the equilibrium level
E)the equilibrium level of output can fall below the potential level

Question

Quizplus · Accepted Answer

Keynes believed that due to various factors such as unemployment, lack of investment, and low consumer demand, the equilibrium level of output can fall below the potential level. This situation is known as a recessionary gap, and according to Keynes, governments should intervene to increase aggregate demand and shift the economy back to the potential level of output.

Keynes Thought That One Macroeconomic Problem Is That