If an economy were experiencing a high rate of unemployment as the result of insufficient aggregate demand, a Keynesian economist would favor:
A) a reduction in taxes coupled with a reduction in government expenditures of equal size.
B) an increase in government expenditures coupled with an increase in taxes of equal size.
C) a reduction in taxes, without any offsetting reduction in government expenditures.
D) maintenance of a balanced budget.

Question

Quizplus · Accepted Answer

A Keynesian economist would recommend a reduction in taxes without any offsetting reduction in government expenditures to stimulate aggregate demand, which can help reduce unemployment caused by insufficient demand. This approach is based on the belief that increasing disposable income will lead to higher consumer spending, thus boosting demand and economic activity.

If an Economy Were Experiencing a High Rate of Unemployment