Which of the following statements would a Keynesian economist most likely agree with?

• A. Long-run economic growth is determined solely by technological progress.
• B. Government intervention is necessary to stabilize the economy during recessions.
• C. Inflation is always caused by increases in the money supply.
• D. Markets always adjust quickly to achieve full employment without any government involvement.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the Keynesian perspective on economic fluctuations. Keynesian economics emphasizes that aggregate demand is the primary driver of economic activity in the short run, and that economies can experience prolonged periods of unemployment or underperformance without automatic self-correction.
2. Step 2: Analyze the statement 'Long-run economic growth is determined solely by technological progress.' This aligns more with classical or neoclassical views, which focus on supply-side factors rather than Keynesian demand-side factors.
3. Step 3: Consider the statement 'Government intervention is necessary to stabilize the economy during recessions.' Keynesians argue that during recessions, private sector demand falls short, so government spending or policy intervention is needed to boost aggregate demand and reduce unemployment.
4. Step 4: Evaluate the statement 'Inflation is always caused by increases in the money supply.' This is more aligned with monetarist views, which focus on the money supply as the main driver of inflation, rather than Keynesian views that consider multiple factors including demand-pull and cost-push inflation.
5. Step 5: Review the statement 'Markets always adjust quickly to achieve full employment without any government involvement.' This reflects classical economic theory, which assumes flexible prices and wages lead to quick market clearing, a view Keynesians challenge by emphasizing market rigidities and the need for policy intervention.