According to the Keynesian view, government spending will have its greatest impact during a severe recession because
A) automatic stabilizers will shift the budget toward a surplus during a severe recession.
B) underemployed resources will be widespread and the crowding out of private spending will be minimal.
C) budget deficits will reduce interest rates and thereby stimulate private investment.
D) increases in the government's outstanding debt will lead to lower future taxes.

Question

Quizplus · Accepted Answer

Keynesian theory asserts that during a severe recession, unemployment and underutilization of resources are widespread, leading to a situation of deficient demand. In such a situation, government spending is believed to be most effective as it can directly boost aggregate demand without significantly crowding out private spending. Additionally, during a recession, interest rates tend to be low and monetary policy may be constrained, making fiscal policy an effective way to stimulate economic activity.

According to the Keynesian View, Government Spending Will Have Its