In the Keynesian model,and increase in government spending financed with an increase in taxes will
A)move an economy left along its Phillips curve.
B)shift the Phillips curve to the up.
C)move an economy right along its Phillips curve.
D)shift the Phillips curve down.
E)not affect the Phillips curve.

Question

Quizplus · Accepted Answer

In the Keynesian model, an increase in government spending will shift the aggregate demand curve to the right, leading to an increase in both output and prices. However, if this increase in spending is financed with an increase in taxes, it will reduce disposable income, which will lower consumption and further shift the aggregate demand curve to the left. As a result, the economy will experience a smaller increase in output and a smaller increase in prices than if the increase in spending had been financed with borrowing or printing money. This reduction in output will move the economy right along its Phillips curve, as there will be higher unemployment and lower inflation in the short run.

In the Keynesian Model,and Increase in Government Spending Financed with an Increase