According to Keynesian economics, fiscal policy should create a deficit during economic contractions.

Question

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Keynesian economics suggests that during economic contractions, the government should increase its spending to boost demand and stimulate the economy. This may lead to a temporary deficit, which can be financed by borrowing at low interest rates. However, during economic expansions, the government should aim to balance its budget or generate a surplus to avoid inflationary pressures.

According to Keynesian Economics, Fiscal Policy Should Create a Deficit