In the Keynesian aggregate supply curve case, a fiscal expansion will
A)have no impact on equilibrium income or prices
B)increase prices but have no impact on equilibrium income
C)increase prices more than income
D)increase income more than prices
E)increase equilibrium income but have no impact on prices

Question

Quizplus · Accepted Answer

In the Keynesian framework, a fiscal expansion (such as increased government spending or tax cuts) is typically assumed to increase aggregate demand, leading to higher equilibrium income without necessarily affecting prices, especially in the short run where prices can be sticky. This is because, in the Keynesian view, economies can operate below their full capacity, allowing for increases in output without immediate price increases.

In the Keynesian Aggregate Supply Curve Case, a Fiscal Expansion