The Keynesian Perspective on Market Forces

Self-Check Questions

Does Keynesian economics require government to set controls on prices, wages, or interest rates?

Hint:

Keynesian economics does not require microeconomic price controls of any sort. It is true that many Keynesian economic prescriptions were for the government to influence the total amount of aggregate demand in the economy, often through government spending and tax cuts.

List three practical problems with the Keynesian perspective.

Hint:

The three problems center on government’s ability to estimate potential GDP, decide whether to influence aggregate demand through tax changes or changes in government spending, and the lag time that occurs as Congress and the President attempt to pass legislation.