Based on the Keynesian model,one reason to support spending increases over tax cuts as measures to increase output is that:
A) government spending increases the MPC more than tax cuts.
B) the government-spending multiplier is larger than the tax multiplier.
C) government-spending increases do not lead to unplanned changes in inventories,but tax cuts do.
D) increases in government spending increase planned spending,but tax cuts reduce planned spending.

Question

Quizplus · Accepted Answer

The Keynesian model suggests that government spending can stimulate the economy by increasing aggregate demand. When the government increases spending, it injects money directly into the economy, which leads to a multiplier effect that increases output (GDP) by more than the initial spending increase. This is known as the government-spending multiplier. In comparison, tax cuts may not be as effective in increasing output because individuals may choose to save or pay down debt with the additional income instead of spending it immediately. Additionally, tax cuts may take longer to have an impact on the economy. Therefore, based on the Keynesian model, one reason to support spending increases over tax cuts is that the government-spending multiplier is larger than the tax multiplier.

Based on the Keynesian Model,one Reason to Support Spending Increases