Question

Which was an economic theory of John Maynard Keynes?

a) Governments should avoid deficit spending in order to increase economic confidence.
b) Governments should create consumer demand by nationalizing several key industries.
c) Governments should attempt to stimulate the economy by increasing the money supply.
d) Governments should generate bond sales to persuade the wealthy to start spending again.

Answer 1

Keynesian economics is a theory of total spending in the economy (called aggregate demand) and its effects on output and inflation. Although the term has been used (and abused) to describe many things over the years, six principal tenets seem central to Keynesianism. The first three describe how the economy works. The answer is c

Answer 2

c) Governments should attempt to stimulate the economy by increasing the money supply.

John Maynard Keynes proposed that increasing government expenditures and lowering taxes would stimulate demand and pull the economy out of a state of depression. His approach sought to generate demand by having the government intervene to "jump start" economic activity. This differed from all the "belt-tightening" and restrictive approaches that others advocated. President Roosevelt's New Deal program sought to put Keynesian economic theory into practice.