Question

Which are among the following concepts is associated with Keynesian economics?

• A. Laissez-Faire
• B. Invisible hand
• C. Aggregate demand management
• D. Comparative advantage

Hint:

Associate economists with their big ideas: Adam Smith $\rightarrow$ Invisible Hand; David Ricardo $\rightarrow$ Comparative Advantage; John Maynard Keynes $\rightarrow$ Aggregate Demand Management. Keynesianism is about government intervention to manage the economy, which is the opposite of Laissez-Faire.

Answer 1

The Correct Option is C

Step 1: Understanding Keynesian Economics:
Keynesian economics, developed by John Maynard Keynes in the 1930s, represents a significant departure from classical economic thought. Its central tenet is that aggregate demand (total spending in the economy) is the most important driving force in an economy and is often volatile and inadequate, leading to recessions and unemployment.

Step 2: Analyzing the Concepts:


(A) Laissez-Faire: This is the belief that economies function best when there is no government interference. This is a core concept of classical economics, which Keynesian economics directly challenges.
(B) Invisible hand: This is a metaphor used by Adam Smith to describe the unintended social benefits of individual self-interested actions. It is a cornerstone of classical, laissez-faire economics.
(C) Aggregate demand management: This is the central idea of Keynesian economics. Keynes argued that during economic downturns, the government should actively intervene to stimulate the economy by increasing government spending or cutting taxes to boost aggregate demand.
(D) Comparative advantage: This is a theory of international trade, most famously associated with David Ricardo. It argues that countries should specialize in producing goods where they have a lower opportunity cost. While important, it is not a central concept of Keynesian macroeconomic theory.

Step 3: Final Answer:
The concept most directly associated with Keynesian economics is Aggregate demand management.