Future Business Leaders of America (FBLA) Agribusiness Practice Test

Which economic theory suggests that economies may require external assistance to function properly?

1. Keynesian

2. Laissez-Faire

3. Microeconomics

4. Macroeconomics

The correct answer is: Keynesian

The Keynesian economic theory posits that economies can experience fluctuations in demand that may require intervention to maintain stability and ensure full employment. Developed by economist John Maynard Keynes during the Great Depression, this theory argues that during periods of economic downturn, private sector demand tends to fall short, leading to unemployment and underutilization of resources. In such cases, Keynesian economics advocates for increased government spending and fiscal policy adjustments to stimulate demand, thereby promoting economic recovery. This approach focuses on the belief that active government intervention is necessary to manage and stabilize the economy, making it relevant in situations where the market alone fails to reach equilibrium. The other economic theories do not emphasize the need for external assistance; for example, Laissez-Faire promotes minimal government involvement in economic activities, while Microeconomics and Macroeconomics focus on different aspects of economic behavior and systems without necessarily advocating for intervention to address economic failures.