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Keynesian economics is a theory that in the short run, especially duri

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Keynesian economics is a theory that in the short run, especially duri  [#permalink]

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New post Updated on: 04 Sep 2019, 01:59
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New Project RC Butler 2019 - Practice 2 RC Passages Everyday
Passage # 106, Date : 25-MAR-2019
This post is a part of New Project RC Butler 2019. Click here for Details


Keynesian economics is a theory that in the short run, especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.

The theories forming the basis of Keynesian economics were first presented by the British economist John Maynard Keynes in his book, The General Theory of Employment, Interest and Money, published in 1936 during the Great Depression. Keynes contrasted his new approach to the aggregate supply-focused 'classical' economics that preceded his book. The interpretations of Keynes that followed are contentious and several schools of economic thought claim his legacy.

Keynesian economists often argue that private sector decisions lead to inefficient macroeconomic outcomes and as a result active policy responses by the public sector are required. In particular, they call for monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. Keynesian economic theory advocates a mixed economy – predominantly private sector, but with some role for government intervention during recessions.

Keynesian economics served as the standard economic model in the developed nations during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the oil shock and resulting stagflation of the 1970s. The advent of the global financial crisis in 2008 has caused a resurgence in Keynesian thought, and the theory remains as important today as it was nearly 100 years ago.

1)A Keynesian economist would most likely agree with which of the following statements:

A)Government intervention should be the primary means for fixing the economy in a recession.
B)Private sector decisions lead to an efficient market.
C)The private sector should play the primary role in the economy.
D)Stagflation resulted from private sector behavior.
E)The supply side of the economy is more important than the demand side.


2)Which of the following can be properly inferred from the passage?

A)In the Keynesian view, the aggregate demand represents the productive capacity of the economy.
B)The Keynesian approach is best used during periods of recession.
C)The Keynesian approach was developed as a way to end the Great Depression.
D)Keynesian economists believe that the government should sometimes influence fiscal policy.
E)Keynesian economists believe in focusing on the supply side of the economy.



3)The primary purpose of the passage is to:

A)advocate John Maynard Keyes’ economic theory
B)challenge classical economic theory
C)discuss Keynes’ The General Theory of Employment, Interest and Money
D)present an important historical theory
E)discuss the Keynesian view on monetary policy actions



Difficulty Level: 650

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Originally posted by sidd13 on 26 Sep 2017, 03:41.
Last edited by SajjadAhmad on 04 Sep 2019, 01:59, edited 1 time in total.
Updated - Complete topic (403).
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Re: Keynesian economics is a theory that in the short run, especially duri  [#permalink]

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New post 16 Dec 2017, 13:37
Can anyone explain Q3? How is it option D? ('important historical theory'; especially with regards to A) advocate John Maynard Keyes’ economic theory; which seems to corroborate with "The advent of the global financial crisis in 2008 has caused a resurgence in Keynesian thought, and the theory remains as important today as it was nearly 100 years ago")
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Re: Keynesian economics is a theory that in the short run, especially duri  [#permalink]

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New post 19 Dec 2017, 04:24
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Madhavi1990 wrote:
Can anyone explain Q3? How is it option D? ('important historical theory'; especially with regards to A) advocate John Maynard Keyes’ economic theory; which seems to corroborate with "The advent of the global financial crisis in 2008 has caused a resurgence in Keynesian thought, and the theory remains as important today as it was nearly 100 years ago")


the last line of passage simply says the theory is important. In the entire passage explains this theory...read the first line of the passage and then the first line of each para and you will know writer tone is neutral. Its simply presenting an important historical theory
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Re: Keynesian economics is a theory that in the short run, especially duri  [#permalink]

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New post 25 Mar 2019, 11:57
In question 1 of the passage it is clearly mentioned in 3rd paragraph first line that private sector decisions lead to inefficient macroeconomic outcomes then how the answer is option C and not B.
In question 3 , the answer could have been C or E but why it is D?
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Re: Keynesian economics is a theory that in the short run, especially duri  [#permalink]

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New post 25 Mar 2019, 16:20
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Q1: C- The private sector should play the primary role in the economy. We can safely deduce this from the given line in the passage, which states "Keynesian economic theory advocates a mixed economy – predominantly private sector, but with some role for government intervention during recessions".

Q2: D - Keynesian economists believe that the government should sometimes influence fiscal policy. This question pretty much builds up from the Q1. From the same line as stated in Q1 "Keynesian economic theory advocates a mixed economy – predominantly private sector, but with some role for government intervention during recessions".

Q3: D - present an important historical theory. Author is neither "advocating" or "challenging" John's theory. Both option C and E are mentioned in the passage, however, they are too narrow in the scope. The larger image of our passage is to merely present John's theory.

Hope this helps!
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Re: Keynesian economics is a theory that in the short run, especially duri  [#permalink]

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New post 19 Apr 2019, 03:40
All correct in 7 mins, including 3 mins 40 seconds to read

Para 1- Keynesian economics(KE) - economic output is strongly influenced by aggregate demand
Para 2- Keynes contrasted his new approach to the aggregate supply-focused 'classical' economics
Para 3- KE -private sector decisions lead to inefficient macroeconomic outcomes, active policy responses by the public sector are required
Para 4- KE served as the standard economic model during WW2 and post it, lost ground after the oil shock and then had a resurgence post-2008 crisis

1)A Keynesian economist would most likely agree with which of the following statements:
C)The private sector should play the primary role in the economy.

Keynesian economic theory advocates a mixed economy – predominantly private sector, but with some role for government intervention during recessions.

2)Which of the following can be properly inferred from the passage?
D)Keynesian economists believe that the government should sometimes influence fiscal policy.

Keynesian economists often argue that private sector decisions lead to inefficient macroeconomic outcomes and as a result active policy responses by the public sector are required. In particular, they call for monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.

3)The primary purpose of the passage is to:
A)advocate John Maynard Keyes’ economic theory- incorrect; the passage does not advocate it
B)challenge classical economic theory- incorrect
C)discuss Keynes’ The General Theory of Employment, Interest and Money - incorrect
D)present an important historical theory- Correct
E)discuss the Keynesian view on monetary policy actions - too narrow scope
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Re: Keynesian economics is a theory that in the short run, especially duri   [#permalink] 19 Apr 2019, 03:40
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