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:

Leveraged Firm

A company that utilizes borrowed money or debt to finance its operations and expansion, potentially increasing its returns or losses.

Call Option

A financial contract that gives the holder the right, but not the obligation, to buy a specified amount of an underlying asset at a set price within a specific time frame.

American Option

A category of options agreement allowing execution at any moment prior to its expiry date.

European Option

A type of financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on the option's expiration date.