In the midst of the Great Depression in 1932, Congress and the Hoover administration increased tax rates substantially. According to the Keynesian view, this tax increase was
A) inappropriate because it would depress economic activity and lead to further increases in unemployment.
B) appropriate because it would lead to a significant increase in the money supply and, thereby, increase employment.
C) inappropriate because it would decrease the money supply and, thereby, prolong the Depression.
D) appropriate because it would stimulate economic activity and help end the Depression.

Question

Quizplus · Accepted Answer

The Keynesian view holds that during an economic downturn, the government should increase spending and lower taxes to stimulate demand and boost economic activity. The tax increase in 1932 went against this view and contributed to the depth and duration of the Great Depression. Higher taxes reduced disposable income and consumer spending, leading to further job losses and lower economic output.

In the Midst of the Great Depression in 1932, Congress