Keynesians believe the economy is characterized by recessions and inflationary booms which can cause unemployment and inflationary concerns. The solutions to a boom causing inflation (high price levels) is contractionary fiscal policy in the form of .

The correct answer is letter "A": tax increases and decreased government spending.

Explanation:

Keynesian Economics is a school of thought where government plays a crucial role in reducing economic recessions. It is named after the British economist John Maynard Keynes (1883-1946) who proposed government intervention during the peak of the Great Depression (1929-1933). Keynes concluded that governments need to battle against economic waves to lessen the effect of the cycles of boom and bust that are inevitable in a free economy.

According to Keynesians, when unemployment and inflation hit the economy, a contractionary fiscal policy using tax increases or a decrease in government spending would lower the pressure on the price level reducing production in small quantities or rising employment moderately.

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