According to Keynes,the adoption of an expansionary fiscal policy will cause:
A)both equilibrium price level and equilibrium output to rise.
B)equilibrium price level to rise and equilibrium output to fall.
C)equilibrium price level to fall and equilibrium output to rise.
D)both equilibrium price level and equilibrium output to fall.
E)equilibrium price level to remain the same and equilibrium output to fall.

Question

Quizplus · Accepted Answer

According to Keynes, an expansionary fiscal policy will increase government spending and/or decrease taxes, which will increase aggregate demand. This increase in aggregate demand will lead to an increase in both equilibrium price level and equilibrium output, as both demand and supply shift to the right.

According to Keynes,the Adoption of an Expansionary Fiscal Policy Will