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2 John Maynard Keynes led a reaction against governmental abstention (non-participation) from economic affairs, advocating interventionist fiscal policy to stimulate economic demand, growth and prosperity.
2 John Maynard Keynes led a reaction against governmental abstention (non-participation) from economic affairs, advocating interventionist fiscal policy to stimulate economic demand, growth and prosperity. This view was in conflict with the classical economists' view. However, the Early Keynesians are pessimistic about the ability of monetary policy to stimulate output in situations such as the 1930s Great Depression in the United States. 2 (a). Describe the situation that happened during the Great Depression and briefly explain how the Great Depression changed economists' view regarding the role of the government in the economy. 2 (b). Use an aggregate demand-aggregate supply diagram to explain the expected effect of a fiscal expansion on real output and price level. State what would happen to unemployment and inflation. 2 (c). Using an IS-LM diagram, explain the Early Keynesians' suggestion that an interventionist fiscal policy could stimulate economic growth and prosperity in the situations such as that during the Great Depression. 2 (d). Using the IS-LM model, explain why the Early Keynesians are pessimistic about the ability of monetary policy to stimulate output in situations such as the 1930s Great Depression in the United States
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