Answer to Question #306454 in Microeconomics for Jai

Question

Although the economy was in the Great Depression, the Hoover administration followed a fiscal policy of balancing the budget. A Keynesian would have found this policy

A. inappropriate, because it probably would have inflationary

consequences that might serve to further the people's

reluctance to hold money.

B. appropriate, because it probably would have led to a significant increase in the money supply and thereby increased employment.

C. appropriate, because it probably would have stimulated economic activity and helped end the depression.

D. appropriate, because a balanced budget is always appropriate.

E. inappropriate, because it probably would further depress

aggregate demand, economic activity, and employment.

Answer 1

The correct answer is E

E. inappropriate, because it probably would further depress aggregate demand, economic activity, and employment.