If the economy is experiencing less than full-employment, the Keynesian model recommends that the government
A) do nothing to stimulate the economy.
B) undertake expansionary fiscal policy to stimulate aggregate demand.
C) undertake expansionary fiscal policy to stimulate aggregate supply.
D) balance the budget to stimulate aggregate demand.

Question

Quizplus · Accepted Answer

The Keynesian model recommends that the government undertake expansionary fiscal policy to stimulate aggregate demand when the economy is experiencing less than full-employment. This can include increasing government spending and/or cutting taxes to increase disposable income for consumers and businesses, which in turn boosts overall spending and economic activity. Doing nothing or balancing the budget would not be effective in stimulating the economy in this situation, and an expansionary policy focused on stimulating aggregate supply would not address the issue of deficient demand.

If the Economy Is Experiencing Less Than Full-Employment, the Keynesian