Using the Keynesian approach, if leakages from the spending stream are greater than injections into the spending stream, total spending will be:
A) less than total output, and total output will decrease.
B) less than total output, and total spending will increase.
C) greater than total output, and total output will increase.
D) greater than total output, and total spending will decrease.

Question

Quizplus · Accepted Answer

In the Keynesian framework, if leakages (such as savings, taxes, and imports) exceed injections (such as investment, government spending, and exports), it means that not all of the income generated in the economy is being spent. This leads to a situation where total spending is less than total output. As a result, unsold goods accumulate, prompting producers to reduce output, leading to a decrease in total output.

Using the Keynesian Approach, If Leakages from the Spending Stream