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

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