Question

Which of the following is true about Keynes philosophy?

• A. Actual spending money during meltdown is more important than where and on what it is spent
• B. Government should be selective in approach for spending money during recession
• C. Filling old bottles with banknotes and burying them is an atrocious proposal
• D. Creating jobs and prosperity during recessions is almost an impracticable proposal
• E. None of the above

Hint:

The "hole-digging" analogy shows that any spending is better than no spending during a liquidity trap.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
Keynes emphasized the quantity of spending over the specific allocation during a liquidity trap.

Step 2: Detailed Explanation:
Keynes argued that during a severe recession (meltdown), the primary goal is to inject money into the economy to increase aggregate demand. The specific projects (where and on what) are secondary to the act of spending itself. He famously suggested that even digging holes and filling them with banknotes would be beneficial.

Step 3: Final Answer:
Actual spending money during meltdown is more important than where and on what it is spent