Keynesian analysis stresses that a tax cut that increases the government's budget deficit (or reduces its budget surplus)
A) is appropriate during a period of inflation.
B) will increase the money supply.
C) will stimulate aggregate supply and, thereby, promote employment.
D) will stimulate aggregate demand and, thereby, promote employment.

Question

Quizplus · Accepted Answer

According to Keynesian analysis, a tax cut that increases the government's budget deficit (or reduces its budget surplus) will stimulate aggregate demand by increasing disposable income, which in turn will promote employment. This is because increased consumption spending by households and businesses will create a multiplier effect, leading to increased output and employment.

Keynesian Analysis Stresses That a Tax Cut That Increases the Government's