Which of the following statements about Keynes’ original theories is true?
Which of the following statements about Keynes’ original theories is true?
Answer:
The correct statement about Keynes’ original theories is 1) Keynes’ original theories focused on the importance of government intervention in the economy.
John Maynard Keynes was a renowned economist who introduced Keynesian economics, which had a significant impact on economic theory and policies during the 20th century. Keynes’ original theories revolved around the idea that market economies can experience periods of prolonged unemployment and economic downturns. His theories challenged the traditional views of classical economists, who believed that markets would naturally self-correct.
Keynes argued that during periods of economic downturns, private investment would decrease, leading to a decrease in aggregate demand, which in turn results in unemployment. To address this issue, Keynes emphasized the importance of government intervention in the economy through fiscal and monetary policies.
According to Keynes, during economic recessions or depressions, the government should increase its spending and decrease taxes to stimulate aggregate demand and encourage investment. By doing so, Keynes believed that the government could help stabilize the economy and reduce unemployment. This approach, known as demand-side economics, highlights the significance of government intervention in managing and influencing economic outcomes.
Therefore, statement 1) is true, as Keynes’ original theories indeed focused on the importance of government intervention in the economy. Statements 2), 3), and 4) do not accurately represent Keynes’ original theories.