Set 4: Central Ideas (Advanced)
Explanation
PASSAGE
The following text describes 'Keynesian Economics'. Keynesian economics focuses on using active government intervention—monetary and fiscal policy—to manage aggregate demand, address potential recessions, and stabilize the economy. John Maynard Keynes argued that during economic downturns, private sector demand is often insufficient to lower unemployment. Therefore, the government should increase spending or cut taxes to stimulate demand, even if it causes a temporary deficit. This contrasts with classical economics, which believes markets self-correct.
What is the primary Keynesian solution for an economic recession?
Detailed Explanation
Choice B is correct. Text says: 'using active government intervention... to manage aggregate demand' and 'government should increase spending.'
Key Evidence:
• "active government intervention"
• "stimulate demand"
Why others are wrong: A (Opposite (Austerity)), C (Not mentioned), D (Opposite (Classical view)).