Question

During a recession, aggregate supply and aggregate demand pull each other downward in a vicious cycle. What did Keynes propose woulkd be the most effective means of breaking the cycle?

Answer 1

Answer:

expansionary fiscal policy

Explanation:

Keynesian theory advocates for an expansionary fiscal policy, that means that the government should either increase spending or decrease taxes. Keynes himself favored increasing government spending and his theory was crucial in helping FDR to overcome the Great Depression.

The problem with a decrease in aggregate demand, is that it decreases aggregate supply, and that results in a further decrease of aggregate supply and vicious cycle forms. Keynesian theory states that if aggregate demanded is boosted, that will increase aggregate supply and the economy will start to grow again.

Of course that doesn't mean that increasing government spending cures all economic evils, since it also generates t own future evils related to an increase in national debt and future interest payments.

Answer 2

Answer:

Government Intervention

Explanation:

Keynes proposes that government budget would greatly influence aggregate demand. That aggregate demand could be stimulated by government spending. In the same vein, lowering of taxes could stimulate consumer spending.