The basic formula developed in the simplified Keynesian model is
A) raise taxes and lower spending to fight unemployment during recessions.
B) lower taxes and increase spending to fight unemployment during recessions.
C) raise taxes and increase spending to fight unemployment during recessions.
D) lower taxes and lower spending to fight unemployment during recessions.

Question

Quizplus · Accepted Answer

The basic formula developed in the simplified Keynesian model is to lower taxes and increase spending to fight unemployment during recessions. This is because during a recession, there is often a decrease in aggregate demand, resulting in lower production and higher unemployment. By decreasing taxes, individuals and firms have more disposable income, which can stimulate consumption and investment, increasing aggregate demand. Increasing government spending can also stimulate the economy by creating jobs and increasing demand for goods and services. This increase in aggregate demand can lead to an increase in production and hiring, reducing unemployment.

The Basic Formula Developed in the Simplified Keynesian Model Is