7. Keynesians believe that a market-directed capitalist economy is inherently unstable.

However, proper monetary and fiscal policies can be used to keep the economy on a stable course. Macropolicy should reflect economic conditions. A planned budget deficit and monetary acceleration are appropriate during a recession. Similarly, a budget surplus and monetary deceleration can be used to restrain an inflationary boom.

Keynesians reject the balanced-budget concept. They believe that discretionary macroplanning is superior to macrorules since the former will enable planners to respond to previously unanticipated economic events. The implications of the Keynesian analysis are particularly relevant during the short-run time period.