Question

Keynesian economists argue a govemment should introduce contractionary fiscal policy:

A) When an economy is rapidly expanding, and inflation is increasing at a unsustainable pace.
B) When economy is in decline and economic activity is slow.
C) When economy has low or negative growth and high unemployment.
D) None of above.

Answer 1

The correct answer is A) When an economy is rapidly expanding, and inflation is increasing at an unsustainable pace.

Step-by-step explanation:

Keynesian economists argue that a government should introduce contractionary fiscal policy when an economy is rapidly expanding, and inflation is increasing at an unsustainable pace.

When an economy is expanding rapidly, there is an increase in aggregate demand which leads to high levels of inflation. To combat this, Keynesian economists recommend contractionary fiscal policy, which involves reducing government spending or increasing taxes in order to decrease aggregate demand and control inflation.