When an economy is operating below its potential capacity, Keynesian economists argue that:
A) taxes should be raised if the government is currently running a budget deficit.
B) taxes should be lowered but only if the government is running a budget surplus.
C) the government should cut taxes and/or increase spending in order to stimulate aggregate demand.
D) all of the above.

Question

Quizplus · Accepted Answer

Keynesian economists argue that the government should adopt expansionary fiscal policies, such as cutting taxes and/or increasing spending, in order to stimulate aggregate demand and boost economic activity when the economy is operating below its potential capacity. This is because such policies can increase consumer and business spending, which can in turn spur economic growth and job creation. Raising taxes when the government is already running a budget deficit could further depress economic activity, while lowering taxes when the government is running a budget surplus may not be necessary or effective in stimulating growth.

When an Economy Is Operating Below Its Potential Capacity, Keynesian