which of the following is a keynesian conclusion about how adjustments occur in a recessionary gap?

Question

A)Govt should reduce intervention
B)Govt should intervene to increase aggregate supply
C)Govt should intervene to increase aggregrate spending
D)Macro equilibrium automatically adjusts to full employment

Answer 1

The answer is c.
Remember that Keynes was a post war economist (post WWII that is). He lived in a world in recession but with ample production capacity. He realized that to push this idle capacity into gear he needed to increase spending. Since the only one who had money was the government, then he proposed increasing government spending. The logic behind this is that the government buy from non-government companies. These employ people who now have money. These people, in turn, spend their money, thus generating a virtuous circle of consumption and further use of idle capacity.
This only works when there is idle capacity in the country. Notice that if the government continues to spend when there is no more idle capacity, this will just push prices up, generating inflation.

Answer 2

The answer is C.

Keynes was an advocate of using fiscal spending to adjust the economy in times of recessioin. Thus, he would have urged the government to increase spending in order to stimulate the economy. While this does work, it is inflationary, and generally accomplishes less than monetary policy through open market operations does.

Answer 3

a