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Number 1. According to Keynes, when there is high inflation, the federal government should (blank) government spending and (blank) taxes.

Correct Answer: Decrease, increase

Number 2. According to Keynes, when there is a recession, the federal government should (blank) government spending and (blank) taxes.

Correct Answer: Increase, decrease

Number 3. If the economy is in a recession should a contractionary or expansionary policy be instituted?

Correct Answer: Expansionary

Number 4. If the economy is experiencing inflation should a contractionary or expansionary policy be instituted?

Correct Answer: Contractionary

Number 5. If the country is experiencing high inflation, the Fed should (blank) the discount rate, (blank) the Reserve Requirement, and (blank) bonds.

Correct Answer: Raise, raise, sell

Number 6. If the country is experiencing high recession, the Fed should (blank) the discount rate, (blank) the Reserve Requirement, and (blank) bonds.

Correct Answer: Lower, lower, buy

Number 7. What is the Keynesian solution to a period of stagflation?

Correct Answer: There isn’t one; any attempt to increase employment will make inflation worse.