Answer the questions about Keynesian theory, market economics, and government po

Question

Answer the questions about Keynesian theory, market economics, and government policy.

Answer the questions about Keynesian theory, market economics, and government policy. Keynes believed that there were "sticky" wages and that recessions are caused by: decreases in aggregate demand (AD), increases in prices, increases in unemployment, decreases in supply. Keynes believed the government should: increase AD through increased government spending, but not tax cuts. increase AD through either increased government spending or tax cuts. increase employment through tax cuts only. increase AS through tax cuts. control wages to increase employment because of sticky wages. intervene when individual markets fail by controlling prices and production.

Explanation / Answer

1.

Decreases in aggregate demand

(Keynes believed that markets do not clear themselves and when demand in the economy falls, there is recession and sticky wages in the economy. He believed that demand is the engine of growth in an economy)

2.

Increase AD through either increased government spending or tax cuts

(Keynes stressed on the importance of government intervention form time to time through fiscal policies of government spending and tax cuts to correct market failure)

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