Assume the economy is in short-run equilibrium at a real GDP below its potential real GDP. According to Keynesian theory, which of the following policies should be followed?
A)The Federal Reserve should increase the money supply.
B)The federal government should increase spending.
C)The federal government should do nothing because the economy will self correct to potential real GDP.
D)All of these.

Question

Quizplus · Accepted Answer

According to Keynesian theory, when the economy is below its potential GDP, the government should increase spending to boost aggregate demand and move the economy towards full employment.

Assume the Economy Is in Short-Run Equilibrium at a Real