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John Maynard Keynes and Friedrich Hayek

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John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 12 Jun 2018, 03:31
3
Question 1
00:00
A
B
C
D
E

Question Stats:

63% (02:37) correct 37% (02:40) wrong based on 183

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Question 2
00:00
A
B
C
D
E

Question Stats:

91% (00:31) correct 9% (00:23) wrong based on 168

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Question 3
00:00
A
B
C
D
E

Question Stats:

83% (00:43) correct 17% (00:55) wrong based on 172

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Question 4
00:00
A
B
C
D
E

Question Stats:

39% (01:25) correct 61% (01:16) wrong based on 171

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John Maynard Keynes and Friedrich Hayek, two prominent public figures associated with the Great Depression that started with the collapse of the stock market in 1929, both proposed different ways to restore the economy. Keynes, an economist from Cambridge, believed that the government should intervene in the situation, whereas Hayek, a professor from Austria, maintained that government involvement would be futile.

Although Hayek almost singlehandedly established the distinction between microeconomics and macroeconomics, engineering the transfer from classical economics to the more practical and application-oriented methodology of mathematical economics, his solution for emerging from the Great Depression was underestimated in the light of Keynes’ contribution to economic theory.

In his 2012 study Keynes Hayek: The Clash that Defined Modern Economics, famous theorist Nicholas Wapshott traces the history of the applications of both men’s theories, giving unprecedented importance to Hayek’s work.Describing how the Keynesian vision dominated Western economic analyses until the 1970s, Wapshott surmises that the primary reason for the dominance of Keynes’ theory during the Depression was that Hayek’s solutions to the issue of economic recession were not politically viable.Hayek prescribed to the belief that, when left to its own devices, the market would eventually recover from its downturn and resume its equilibrium; this position was, not surprisingly, rejected by both the US and European political organizations, each seeking to prove its worth in reestablishing the economy’s prosperity.


1. According to the passage, which of the following is true?
A. Hayek’s solution to the economic depression was not guided in the right direction.
B. Before Wapshott’s 2012 study, Hayek’s contribution to the field of economics was unknown.
C. Hayek’s contribution to economics began in the 1970s and has continued into the twenty-first century.
D. Macroeconomics was singlehandedly created by Hayek.
E. A specific work gave more importance to Hayek’s work than ever before.

A. Incorrect: Out of Scope
The author states that Hayek’s solution was not politically viable. This does not necessarily mean that it was misguided.
B.Incorrect: Out of Scope
The author states that Wapshott gave “unprecedented” /unmatched importance to Hayek’s work. This does not give us any basis to understand that Hayek’s work was unknown before Wapshott’s analysis.
C. Incorrect: Out of Scope
The passage states Keynes’ contribution dominated Western economic analyses until the 1970s. We do not know when Hayek’s contribution began.
D. Incorrect: Inconsistent
The author states that Hayek established the distinction between microeconomics and macroeconomics, not that he created macroeconomics.
E. Correct
This information is explicitly stated in the passage as the author states that Wapshott’s study gave “unprecedented importance” to Hayek’s work.



2. The primary purpose of the passage is to
A. contrast two solutions to the same issue.
B. establish the superiority of one hypothesis over another.
C.prove that one theorist's contribution to a particular field was more notable than another's.
D. outline different approaches to a historical problem.
E. contrast two different approaches to a historical problem and share the reason for the limited appreciation for one

A. Incorrect: Partial Scope
The author contrasts the two views only in the first paragraph of the passage. The second half of the passage is devoted to highlighting why the solution proposed by Hayek was not appreciated as much as it should have been.
B. Incorrect: Out of scope
The author does not say that Hayek’s hypothesis was superior to Keynes’.
C. Incorrect: Out of Scope
The author does not say that Hayek’s contribution was more noteworthy than Keynes’.
D. Incorrect: Out of Context
First of all, the author doesn’t discuss the Great Depression and the proposed solutions to it in general. Secondly, the author does present Keynes’ and Hayek’s differing views, but this is not the main purpose of the author as discussed in the solution to choice A.
E.Correct
This choice matches our understanding of the passage, as detailed in the passage analysis, and our discussion in the pre-thinking analysis.




3. According to the passage, which of the following was true of political parties at the time of the Great Depression?
A. They wanted to speed up the process of reestablishing the economy’s prosperity.
B. They believed it was futile for the government to get involved in market mechanisms.
C. They believed they had a responsibility to intervene in the situation.
D. They wanted to prove that they were capable of reinstating the economy’s well-being.
E. They believed that Hayek's solution would undermine their future in politics.

A. Incorrect: Out of Scope
There is no given information that states or hints that the political organizations felt so.
B. Incorrect: Opposite
This was Hayek’s view; not the view of the political parties.
C. Incorrect: Inconsistent
This was Keynes’ view as he believed that the governments “should” intervene in the situation. From the information given about the political parties, we just know that these organizations wanted to prove that they could be significant in reestablishing the economy’s prosperity; nothing can be said about whether they felt they had the responsibility to do so.
D. Correct
This choice matches the author’s statement that each political party was “seeking to prove its worth” in helping the economy to recover.
E. Incorrect: Inconsistent
Wapshott states that Hayek’s view was unpopular because it was not politically viable at the time. We do not know whether the political parties of the time felt threatened about their futures.




4. Which of the following would the author most likely agree with?
A. Hayek’s theory was dominated by Keynes’ because Keynes had a better long-term vision than Hayek did.
B. Even though the reaction of the political organization could be anticipated, the underwhelming response received by Hayek in general was not indicative of the potential of his theory.
C. In addition to being politically viable, Hayek’s ideas were probably ahead of their time.
D. Had Keynes also argued for limited government intervention, his ideas too would have been vehemently rejected by the political organizations.
E. In the light of the real reason that Hayek’s theory did not receive much appreciation, Keynes probably did not contribute as much to economics as he is credited for.

A. Incorrect: Out of Scope
The author does not state or imply anything about the long-term viability of Keynes’ theory.
B. Correct
This choice is a combination of two opinions expressed by the author. The author states that the rejection of Hayek’s solution by the political organizations was not surprising. Hence, we can understand that their reaction could be anticipated. And we are also told that Hayek’s theory was “underestimated”. This means that the author believes that the merits of the theory weren’t fully appreciated.
C. Incorrect: Out of Scope
The author does not comment on/suggest anything about the relevance of Hayek’s ideas with respect to their being ahead of their time.
D. Incorrect: Out of Scope
We have no basis to conclude whether Keynes would have received a similar response by the then political organizations. Also, the word “vehemently” makes this choice too extreme.
E. Incorrect: Out of Scope
Wapshott’s analysis, which the author uses to convey his/her point about Hayek’s theory being underestimated at the time of the Depression, just tells us that the real reason that Hayek’s theory was overshadowed by Keynes’ was not that it had limited merits but because it was politically not viable. From this specific analysis, we cannot draw any inference about the merits of Keynes’ theory and certainly not about his overall contribution to economics.


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Re: John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 12 Jun 2018, 22:15
Got 3 right.Could anyone explain why Option B for Q4 and why not D or E?
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Re: John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 14 Jun 2018, 00:22
1

Question 1



The answer is (E).


we'll go for the

Alternative

method, since we are being asked to inspect the answer choices.

Let's review:
A. Hayek’s solution to the economic depression was not guided in the right direction. no - the text says his ideas weren't accepted for political reasons, not that they were wrong
B. Before Wapshott’s 2012 study, Hayek’s contribution to the field of economics was unknown. Not stated and almost certainly wrong - Wapshott's study gave him unprecedented credit, but it did not introduce him tot he public - we know he was a "prominent public figure" from the start
C. Hayek’s contribution to economics began in the 1970s and has continued into the twenty-first century. no - he was associated with the response to the 1929 crash, way before 1970
D. Macroeconomics was singlehandedly created by Hayek. close, but no - be singlehandedly created the distinction between macro and microeconomics - which means these fields already existed
E. A specific work gave more importance to Hayek’s work than ever before. by process of elimination, this must be true - and it is! Wapshot's book gave Hayek "unprecedented" importance
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Re: John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 14 Jun 2018, 00:32

Question 2


the answer is E.

This is a question we can solve using the

Precise

approach, because we have information to solve it.
We just need to ask ourselves: what is this text about?
It presents and compares 2 important figures with different approaches to a big problem, but this comparison is not symmetrical: one is described as more influential, and reasons are given for this being the case. In other words, the goal is to E. contrast two different approaches to a historical problem and share the reason for the limited appreciation for one


If we're still not sure, here's a review of why the other answers are wrong. All we have to do is ask ourselves: if this were the topic, what would the passage look like?

A. contrast two solutions to the same issue. this is definitely part of the topic, but there isn't actually that much information about the differences between the solutions themselves - much of the passage is about the reasons one succeeded and the other didn't
B. establish the superiority of one hypothesis over another. no - nowhere are we told which hypothesis is actually better. We are only given reasons why one succeeded and the other didn't
C.prove that one theorist's contribution to a particular field was more notable than another's. it's true that this is stated, but this can't be described as the goal: it's only briefly described, most of the passage is not about this

D. outline different approaches to a historical problem. again, this is definitely part of the goal - but if this were the main goal, we would expect more information about the approaches themselves, which in this case is only a few sentences
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Re: John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 14 Jun 2018, 00:36

Question 3


The answer is D.

We can solve this question using the

Precise

approach, by looking for the relevant part in the text.
The passage mentions political organisations only once, at the end: we are told that they rejected Hayek's solution, which decreed that they should have a minimal role, because they were eager to prove their worth in solving the problem. In other words, (D) They wanted to prove that they were capable of reinstating the economy’s well-being.

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Re: John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 14 Jun 2018, 00:59
2

Question 4



The answer is B.

We can solve this question by using the

Alternative

approach, and reviewing the answers:
A. Hayek’s theory was dominated by Keynes’ because Keynes had a better long-term vision than Hayek did. no - nowhere does the author express his opinion about which theory is better
B. Even though the reaction of the political organization could be anticipated, the underwhelming response received by Hayek in general was not indicative of the potential of his theory.myes - the political response is referred to as "not surprisingly", and the primary reason for the theory's failure is political, not due to its actual potential
C. In addition to being politically viable, Hayek’s ideas were probably ahead of their time. no - this strongly indicates that his ideas are good or correct, or at least advanced and cutting-edge, none of which is stated
D. Had Keynes also argued for limited government intervention, his ideas too would have been vehemently rejected by the political organizations. perhaps - but the word "vehemently" is too strong: nowhere is it sated that even Hayek was opposed this strongly
E. In the light of the real reason that Hayek’s theory did not receive much appreciation, Keynes probably did not contribute as much to economics as he is credited for. no - even if the reasons were political, Keyne's influence is a fact which cannot be denied
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Re: John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 14 Jun 2018, 01:01
prashant6923 wrote:
Got 3 right.Could anyone explain why Option B for Q4 and why not D or E?


I answered this in my above post, take a look and tell me if it helps. D is definitely the most confusing, because it actually makes sense that it would be more or less true, but the main clue that it isn't is the use of such strong language (vehemently).
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John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 03 Sep 2018, 22:50
3
1. According to the passage, which of the following is true?


A. Hayek’s solution to the economic depression was not guided in the right direction.

Incorrect: Out of Scope. The author states that Hayek’s solution was not politically viable. This does not necessarily mean that it was misguided.

B. Before Wapshott’s 2012 study, Hayek’s contribution to the field of economics was unknown.

Incorrect: Out of Scope. The author states that Wapshott gave “unprecedented” /unmatched importance to Hayek’s work. This does not give us any basis to understand that Hayek’s work was unknown before Wapshott’s analysis.

C. Hayek’s contribution to economics began in the 1970s and has continued into the twenty-first century.

Incorrect: Out of Scope. The passage states Keynes’ contribution dominated Western economic analyses until the 1970s. We do not know when Hayek’s contribution began.

D. Macroeconomics was singlehandedly created by Hayek.

Incorrect: Inconsistent. The author states that Hayek established the distinction between microeconomics and macroeconomics, not that he created macroeconomics.

E. A specific work gave more importance to Hayek’s work than ever before.

Correct. This information is explicitly stated in the passage as the author states that Wapshott’s study gave “unprecedented importance” to Hayek’s work.

2. The primary purpose of the passage is to


A. contrast two solutions to the same issue.

Incorrect: Partial Scope. The author contrasts the two views only in the first paragraph of the passage. The second half of the passage is devoted to highlighting why the solution proposed by Hayek was not appreciated as much as it should have been.

B. establish the superiority of one hypothesis over another.

Incorrect: Out of scope. The author does not say that Hayek’s hypothesis was superior to Keynes’.

C.prove that one theorist's contribution to a particular field was more notable than another's.

Incorrect: Out of Scope. The author does not say that Hayek’s contribution was more noteworthy than Keynes’.

D. outline different approaches to a historical problem.

Incorrect: Out of Context. First of all, the author doesn’t discuss the Great Depression and the proposed solutions to it in general. Secondly, the author does present Keynes’ and Hayek’s differing views, but this is not the main purpose of the author as discussed in the solution to choice A.

E. contrast two different approaches to a historical problem and share the reason for the limited appreciation for one

Correct. This choice matches our understanding of the passage, as detailed in the passage analysis, and our discussion in the pre-thinking analysis.

3. According to the passage, which of the following was true of political parties at the time of the Great Depression?


A. They wanted to speed up the process of reestablishing the economy’s prosperity.

Incorrect: Out of Scope. There is no given information that states or hints that the political organizations felt so.

B. They believed it was futile for the government to get involved in market mechanisms.

Incorrect: Opposite. This was Hayek’s view; not the view of the political parties.

C. They believed they had a responsibility to intervene in the situation.

Incorrect: Inconsistent. This was Keynes’ view as he believed that the governments “should” intervene in the situation. From the information given about the political parties, we just know that these organizations wanted to prove that they could be significant in reestablishing the economy’s prosperity; nothing can be said about whether they felt they had the responsibility to do so.

D. They wanted to prove that they were capable of reinstating the economy’s well-being.

Correct. This choice matches the author’s statement that each political party was “seeking to prove its worth” in helping the economy to recover.

E. They believed that Hayek's solution would undermine their future in politics.

Incorrect: Inconsistent. Wapshott states that Hayek’s view was unpopular because it was not politically viable at the time. We do not know whether the political parties of the time felt threatened about their futures.

4. Which of the following would the author most likely agree with?


A. Hayek’s theory was dominated by Keynes’ because Keynes had a better long-term vision than Hayek did.

Incorrect: Out of Scope. The author does not state or imply anything about the long-term viability of Keynes’ theory.
B. Even though the reaction of the political organization could be anticipated, the underwhelming response received by Hayek in general was not indicative of the potential of his theory.

Correct. This choice is a combination of two opinions expressed by the author. The author states that the rejection of Hayek’s solution by the political organizations was not surprising. Hence, we can understand that their reaction could be anticipated. And we are also told that Hayek’s theory was “underestimated”. This means that the author believes that the merits of the theory weren’t fully appreciated.

C. In addition to being politically viable, Hayek’s ideas were probably ahead of their time.

Incorrect: Out of Scope. The author does not comment on/suggest anything about the relevance of Hayek’s ideas with respect to their being ahead of their time.

D. Had Keynes also argued for limited government intervention, his ideas too would have been vehemently rejected by the political organizations.

Incorrect: Out of Scope. We have no basis to conclude whether Keynes would have received a similar response by the then political organizations. Also, the word “vehemently” makes this choice too extreme.

E. In the light of the real reason that Hayek’s theory did not receive much appreciation, Keynes probably did not contribute as much to economics as he is credited for.

Incorrect: Out of Scope. Wapshott’s analysis, which the author uses to convey his/her point about Hayek’s theory being underestimated at the time of the Depression, just tells us that the real reason that Hayek’s theory was overshadowed by Keynes’ was not that it had limited merits but because it was politically not viable. From this specific analysis, we cannot draw any inference about the merits of Keynes’ theory and certainly not about his overall contribution to economics.
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Re: John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 04 Sep 2018, 04:45
3/4 correct, i didnt focus much on question 4 and missed the right option. the passage was easy so were questions. nice job workout
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Re: John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 05 Sep 2018, 18:22
1
Quote:
1. According to the passage, which of the following is true?
A. Hayek’s solution to the economic depression was not guided in the right direction.
B. Before Wapshott’s 2012 study, Hayek’s contribution to the field of economics was unknown.
C. Hayek’s contribution to economics began in the 1970s and has continued into the twenty-first century.
D. Macroeconomics was singlehandedly created by Hayek.
E. A specific work gave more importance to Hayek’s work than ever before.


'The Clash that Defined Modern Economics, famous theorist Nicholas Wapshott traces the history of the applications of both men’s theories, giving unprecedented importance to Hayek’s work'
Hence the answer to 1st question is 'E'

Quote:
2. The primary purpose of the passage is to
A. contrast two solutions to the same issue.
B. establish the superiority of one hypothesis over another.
C.prove that one theorist's contribution to a particular field was more notable than another's.
D. outline different approaches to a historical problem.
E. contrast two different approaches to a historical problem and share the reason for the limited appreciation for


Though I found this tad tricky; I came up with the correct one.
A - although we have 2 viewpoints to the same core issue that is not the reason author has come up with this passage. Author wants to rather stress on the limited applicability of 1 of the viewpoints.
B - author is no way trying to establish the superiority of Keyne's viewpoint to Hayek's. Rather author is giving the rationale behind the preference of Keyne's viewpoint.
C - OUT for same reason as B
D - OUT for same reason as A
E - as discussed in A, this is the one we are looking for

Quote:
3. According to the passage, which of the following was true of political parties at the time of the Great Depression?
A. They wanted to speed up the process of reestablishing the economy’s prosperity.
B. They believed it was futile for the government to get involved in market mechanisms.
C. They believed they had a responsibility to intervene in the situation.
D. They wanted to prove that they were capable of reinstating the economy’s well-being.
E. They believed that Hayek's solution would undermine their future in politics.


These are the last 3 lines: this position was, not surprisingly, rejected by both the US and European political organizations, each seeking to prove its worth in reestablishing the economy’s prosperity.

Hence the answer is 'D'

Quote:
4. Which of the following would the author most likely agree with?
A. Hayek’s theory was dominated by Keynes’ because Keynes had a better long-term vision than Hayek did.
B. Even though the reaction of the political organization could be anticipated, the underwhelming response received by Hayek in general was not indicative of the potential of his theory.
C. In addition to being politically viable, Hayek’s ideas were probably ahead of their time.
D. Had Keynes also argued for limited government intervention, his ideas too would have been vehemently rejected by the political organizations.
E. In the light of the real reason that Hayek’s theory did not receive much appreciation, Keynes probably did not contribute as much to economics as he is credited for.


Except B, no other choice can be inferred. Nowhere in the passage is the author critical of Hayek's viewpoint ; author says that the reason there are no buyers for Hayek's theory is that it's not politically viable and not because it is a poor solution.
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Re: John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 05 Sep 2018, 18:37
Hi,

Could anyone please explain why option D is incorrect for Q4? In the passage, it states that "This position (aka " government involvement would be futile") was, not surprisingly, rejected by both the US and European political organizations, each seeking to prove its worth in reestablishing the economy’s prosperity". According to one, we know that the government wanted to prove its worth when it came to reestablishing the economy and rejected Hayek's position. Based on all of this, can we not conclude that "Had Keynes also argued for limited government intervention, his ideas too would have been vehemently rejected by the political organizations"? Where am I going wrong in my thinking? Could someone please shed some light on this aspect? Would greatly appreciate it!
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John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 05 Sep 2018, 19:06
csaluja wrote:
Hi,

Could anyone please explain why option D is incorrect for Q4? In the passage, it states that "This position (aka " government involvement would be futile") was, not surprisingly, rejected by both the US and European political organizations, each seeking to prove its worth in reestablishing the economy’s prosperity". According to one, we know that the government wanted to prove its worth when it came to reestablishing the economy and rejected Hayek's position. Based on all of this, can we not conclude that "Had Keynes also argued for limited government intervention, his ideas too would have been vehemently rejected by the political organizations"? Where am I going wrong in my thinking? Could someone please shed some light on this aspect? Would greatly appreciate it!



Political organizations opposed Hayek's theory not because he advocated for limited government intervention but because his theory was not politically viable.
Refer this part of the passage:

Wapshott surmises that the primary reason for the dominance of Keynes’ theory during the Depression was that Hayek’s solutions to the issue of economic recession were not politically viable.Hayek prescribed to the belief that, when left to its own devices, the market would eventually recover from its downturn and resume its equilibrium; this position was, not surprisingly, rejected by both the US and European political organizations, each seeking to prove its worth in reestablishing the economy’s prosperity..

Hope this helps.
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John Maynard Keynes and Friedrich Hayek  [#permalink]

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New post 12 Sep 2018, 19:52
DavidTutorexamPAL wrote:
prashant6923 wrote:
Got 3 right.Could anyone explain why Option B for Q4 and why not D or E?


I answered this in my above post, take a look and tell me if it helps. D is definitely the most confusing, because it actually makes sense that it would be more or less true, but the main clue that it isn't is the use of such strong language (vehemently).


Hmmm. I could be wrong, but here is my analysis:

I'd disagree with you in that I don't believe the answer makes sense at all. The answer states, "Had Keynes also argued for limited government intervention, his ideas too would have been vehemently rejected by the political organizations." The passage does not state that Hayek argued for limited government intervention, but it states that Hayek's approach was not politically viable and, more importantly, that the market should be left to its own devices. The market being left to its own devices implies that there should be no government intervention at all. In the context provided, the word 'limited' implies that there would be still be some sort of government intervention, automatically eliminating the answer choice.

I'm interested in hearing your thoughts on this because this approach is how I immediately eliminated (D.).
John Maynard Keynes and Friedrich Hayek &nbs [#permalink] 12 Sep 2018, 19:52
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