If the economy is suffering from demand deficient unemployment then Keynes would recommend
A) Cutting long term interest rates in order to boost investment.
B) Increasing the level of government spending to shift the expenditure line upwards.
C) Changing the marginal propensity to consume to bring about equilibrium in the economy at full employment output.
D) Increasing imports to help boost national income by shifting the expenditure line upwards.

Question

Quizplus · Accepted Answer

Keynes would recommend increasing the level of government spending to shift the expenditure line upwards, as this would increase aggregate demand and create employment. This is because during a period of demand deficient unemployment, there is not enough demand in the economy to reach full employment output. By increasing government spending, the government is essentially injecting more money into the economy, which would increase the level of aggregate demand and lead to more jobs being created.

If the Economy Is Suffering from Demand Deficient Unemployment Then