Question

When the economy is in a recessionary gap, Keynesian economists will often advocate expansionary policy measures. Why?

a) Keynesians believe the economy itself swiftly eliminates recessionary gaps to return the economy to full-employment output.
b) Keynesians believe the economy sometimes gets stuck in a recessionary gap and cannot get itself out without government intervention.
c) Keynesians believe in a self-regulating economy.
d) Keynesians are generally in favor of increasing taxes.

Answer 1

Keynesian economists advocate for expansionary fiscal policy during a recessionary gap as they believe the economy may require government intervention to recover, rather than relying on self-regulation. They recommend government actions such as tax cuts or increased spending to stimulate aggregate demand and encourage economic growth.

Step-by-step explanation:

When the economy is in a recessionary gap, Keynesian economists often advocate for expansionary policy measures. The reason for this is option b) Keynesians believe the economy sometimes gets stuck in a recessionary gap and cannot get itself out without government intervention.

Keynesian macroeconomics suggests that during a recession, appropriate policy action is to implement expansionary fiscal policy, such as tax cuts to encourage consumption and investment, or by increasing government spending. These actions are intended to shift the aggregate demand curve to the right, stimulating economic growth and closing the recessionary gap.

Specifically, the goal is to increase aggregate demand when private demand falls short, to reinvigorate the economy and achieve full employment. This intervention is crucial during recessions because Keynesians do not believe in a self-regulating economy that can swiftly eliminate recessionary gaps without external assistance.