Multiple Choice
When nations desire a healthy macroeconomy, they typically focus on three main goals. One of these goals is:
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1. Introduction to Macroeconomics
Introduction to Economics
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Which of the following best describes a key principle of Keynesian economics?
A
Government intervention can help stabilize the economy during recessions.
B
Markets always self-correct and reach full employment without government involvement.
C
Inflation is caused only by increases in the money supply.
D
Economic growth is solely determined by technological progress.
Verified step by step guidance1
Understand that Keynesian economics emphasizes the role of aggregate demand in influencing economic output and employment, especially during downturns.
Recognize that Keynesians argue markets do not always self-correct quickly or efficiently, which can lead to prolonged periods of unemployment or recession.
Identify that Keynesian theory supports active government intervention, such as fiscal policy (government spending and taxation), to stabilize the economy during recessions.
Note that other options, like markets always self-correcting or inflation being caused only by money supply increases, align more with classical or monetarist views, not Keynesian economics.
Conclude that the key principle of Keynesian economics is that government intervention can help stabilize the economy during recessions.
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