Macroeconomic policies became more influenced by Keynes' theories starting with which period?

• A. The period of high unemployment and high inflation in the 1970s
• B. The OPEC recession
• C. The period of high inflation in the early 1980s
• D. The Great Depression

Answer: (D)

Keynesian ideas say that when private demand falls, government spending and monetary policy should step in to stabilize output and employment. This shift became clear during the Great Depression, when mass unemployment and idle capacity showed that markets alone could not restore growth. Policymakers then adopted Keynesian tools—public works, unemployment relief, and deficit-financed spending—to boost aggregate demand and pull the economy out of slump. That experience established the practical use of demand-management policies and shaped macroeconomic policy for decades. In later periods, other forces—like the inflation and supply shocks of the 1970s and early 1980s—drew policy in different directions, so the Great Depression is the moment that Keynesian influence became the guiding approach.