What Is the Difference Between the Classical Approach and the Keynesian

question 129

Multiple Choice

What is the difference between the classical approach and the Keynesian approach to fiscal policy?  

• A) Keynesians believe that natural forces in the economy tend toward full employment, whereas classical economists believe in government intervention. 
• B) Keynesians and classical economists believe that natural forces in the economy do NOT tend toward full employment. 
• C) Classical economists believe that the economy will NOT achieve its potential GDP, whereas Keynesians believe that any action of the government will make matters worse. 
• D) Keynesians believe that government action is needed to stimulate output and employment in order for the economy is to achieve its potential output, but classical economists believe that the economy's natural tendency is to full employment.

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Definitions:

MPC

Marginal Propensity to Consume, which is the proportion of an increase in income that gets spent on consumption.

MPS

The marginal propensity to save, which is the fraction of an increase in income that is saved rather than spent.

Milton Friedman

An American economist known for his strong belief in free-market capitalism.

Permanent

Something that is meant to last or continue indefinitely without change.