Question

The distinction between the classical ​IS-LM model and the Keynesian ​IS-LM model is important because the classicals are __ likely​ than/as Keynesians to recommend government intervention to restore equilibrium.

a. More likely
b. Less likely
c. Equally likely
d. Sometimes more likely, sometimes less likely

Answer 1

Classical economists are less likely than Keynesians to recommend government intervention in the economy due to their belief in a self-correcting market mechanism. Thus, the option b is the correct answer.

Step-by-step explanation:

The distinction between the classical IS-LM model and the Keynesian IS-LM model is crucial in understanding the different recommendations for government intervention to restore economic equilibrium. Classical economists believe in a self-correcting economy, thus they are less likely than Keynesians to recommend government intervention during economic fluctuations. This difference stems from the Keynesian perspective that changes to aggregate demand are the primary cause of business cycle fluctuations and that governments should actively work to reverse recessionary and inflationary periods.