According to Keynesian theory, a decrease in government expenditures would be a proper fiscal policy during
A)an inflationary gap.
B)a recessionary gap.
C)a natural disaster.
D)none of these.

Question

Quizplus · Accepted Answer

According to Keynesian theory, during an inflationary gap (when the economy is producing beyond its potential and pushing prices up), a decrease in government expenditures would be a proper fiscal policy. This is because it reduces aggregate demand and helps control the inflationary pressures. A decrease in government expenditures during a recessionary gap (when the economy is producing below its potential) would exacerbate the problem by further reducing aggregate demand and worsening the recession. A natural disaster may require an increase in government expenditures to provide relief and reconstruction support.

According to Keynesian Theory, a Decrease in Government Expenditures Would