Which of the following is true in the Keynesian model?
A)An easy fiscal policy affects output despite the effect of fiscal policy on the interest rates.
B)An easy monetary policy is associated with an increase in interest rates.
C)An easy fiscal policy is associated with a decrease in interest rates.
D)An easy monetary policy will lead to crowding-out effect.

Question

Quizplus · Accepted Answer

In the Keynesian model, an easy fiscal policy, such as an increase in government spending or a decrease in taxes, can boost output even if it leads to higher interest rates. This is because the increase in demand from the fiscal stimulus can lead to higher investment and consumption, which can offset the negative impact of higher interest rates on these components of aggregate demand.

Which of the Following Is True in the Keynesian Model