Question

How did the ideas of John Maynard Keynes differ from his predecessor, Adam Smith?

a. Smith believed that government control over market forces would allow for greater stability, while Keynes felt any intervention would lead to ruin.
b. Keynes believed that governments needed to engage in fiscal and monetary policy in order to keep the economy stable, while Smith believed that government intervention would only weaken an economy
c. Keynes brought forth the idea of Communism where governments controlled all matters of production, while Smith believed in a "laissez-faire" style of governing.
d. While Smith thought that factory owners were "the bourgeoisie" and should be overthrown, Keynes believed that a hierarchy of production was necessary in order to ensure competitive market prices and encourage innovation.

Answer 1

The correct answer is B.

The Keynesian theory supports that the economic authorities intervene the markets to stimulate the demand and help the economy to recover more quickly, in addition, to avoid the unemployment, that usually is the worst consequence of the economic crises.

On the other hand, classical economists like Smith, criticize the Keynesians, because they claim that the intervention of economic authorities is a distortion which makes that markets do not find their point of equilibrium, because in the long term it causes inflation.