Use the following figure to answer the questions : Figure 8.5: -In Figure 8.5,according to Keynesians,if equilibrium real output is Q₁ and full-employment real output is Q₂,an appropriate fiscal policy lever would be to A)Increase AD by increasing income taxes. B)Increase AD by increasing government spending. C)Increase AS by reducing government regulations. D)Reduce AS by tightening air pollution standards to improve air quality.

Question

Quizplus · Accepted Answer

According to Keynesians, when the equilibrium real output is below full-employment real output, the appropriate fiscal policy is to increase aggregate demand (AD) through either increasing government spending or decreasing income taxes. Therefore, the best choice is (B) Increase AD by increasing government spending.

Use the Following Figure to Answer the Questions : Figure