According to the traditional Keynesian school of thought, expansionary fiscal and monetary policy will:
A)increase interest rates, thereby shifting the investment function to the right.
B)reduce both consumption and investment spending, thereby eliminating all inflationary pressures.
C)reduce investment spending, thereby stabilizing the aggregate supply shocks.
D)stimulate both consumption and investment spending, thereby increasing aggregate demand.
E)shift the aggregate demand curve to the left, thereby reducing the unemployment rate.

Question

Quizplus · Accepted Answer

According to Keynesian economics, expansionary fiscal and monetary policies will increase government spending and lower interest rates, which will stimulate both consumption and investment spending, resulting in an increase in aggregate demand. This increase in aggregate demand will lead to an increase in output and economic growth, which will eventually lead to a decrease in unemployment. Therefore, option D is the correct choice. Options A, B, and E are incorrect.

According to the Traditional Keynesian School of Thought, Expansionary Fiscal