According to the Keynesian view, capitalism is a highly productive form of econo
ID: 1136150 • Letter: A
Question
According to the Keynesian view, capitalism
is a highly productive form of economic organization that works best when government intervention is least.
experiences booms and busts because of the instability of private investment that is driven by fickle changes in business optimism.
experiences booms and busts that are primarily the result of inappropriate monetary policy.
experiences fluctuations in aggregate demand that cannot be controlled with fiscal policy.
According to Friedrich Hayek and his followers, the booms and busts of the business cycle are primarily the result of
the unwillingness of political decision-makers to follow the advice of macroeconomists who know how to alter fiscal policy in a manner that would virtually eliminate the ups and downs of the business cycle.
excessive credit expansion and artificially low interest rates that trigger malinvestment.
fluctuations in aggregate demand.
the “animal spirits” of private investors.
In his book The Road to Serfdom, Friedrich Hayek argued that the growth of government
could only be achieved if monetary policy-makers were willing to expand the supply of money more rapidly.
endangered freedom and moved Western democracies toward tyranny, just as it had done in Nazi Germany and the Soviet Union.
was essential if the ups and downs of the business cycle were going to be controlled.
must be increased if western democracies were going to survive.
a.is a highly productive form of economic organization that works best when government intervention is least.
b.experiences booms and busts because of the instability of private investment that is driven by fickle changes in business optimism.
c.experiences booms and busts that are primarily the result of inappropriate monetary policy.
d.experiences fluctuations in aggregate demand that cannot be controlled with fiscal policy.
Explanation / Answer
It should be clear that Keynesians view private investment as highly unstable and volatile because of the phenomenon of animal spirits of business optimism. This is the reason why they always favor a strong role of government. On the other side, Austrian school of thought supported by Friedrich Hayek and others, favors captalism and consider money supply increase as the real culprit behind the expansion and recessions of economic activity.
In this manner, we have the following selected options
1) Option B
2) Option B
3) Option B
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