CFA Practice Question

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CFA Practice Question

Keynes argued that the ______

A. long-run is more relevant than the short run.
B. short run is more relevant than the long run.
C. short run and the long run are equally important.
D. distinction between the short run and the long run is irrelevant.
Correct Answer: B

For Keynes, the short-run was more important because output seldom reached its potential, even over long periods of time.

User Contributed Comments 7

User Comment
am741 Keynes: short-run more important
CalvinZ Keynes focuses on spending to supplement insufficent demand, and fiscal spending is short term in nature (from year to year)
solnce There is a famous Keynesian statement: in the long-run we are all dead. :) All available empirical evidence supports this view. :)
Masterkang That must be the reason why the short-run was more relevant for him
EMerkert That's why all politicians and gov't economists are Keynesists, they can run huge deficits and let the next generation deal with them.
Keynesian Economics = failure
jonan203 in the long run, we're all dead (and our children have to pick up the tab)

entitlements for the loss...
bidisha Jonan and EMerkert,
He DID NOT say you can run huge deficits!
Keynes believed that the time to cut government spending and balance deficits is during a BOOM period. As in during the 2004-2005 bush era, and the clinton era.
Deficit reduction should NOT be a priority during recessionary period. It should be GROWTH and EMPLOYMENT. Hence spend in the short run to stimulate growth during recession and THEN balance budgets in boom.
Getting the crux of these things are important beyond CFA to be a well informed citizen and while choosing who to vote for and why.
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