According to Keynes, the policy of incurring budget deficits will cause the equilibrium price level to rise.What is the corresponding effect on equilibrium output?
A) It rises.
B) It falls.
C) It remains the same.
D) It first rises, and then falls.

Question

According to Keynes, the policy of incurring budget deficits will cause the equilibrium price level to rise.What is the corresponding effect on equilibrium output?  
A) It rises. 
B) It falls. 
C) It remains the same. 
D) It first rises, and then falls.

Quizplus · Accepted Answer

According to Keynes, increasing government spending through budget deficits will increase aggregate demand and cause the equilibrium price level to rise. This increase in demand will increase the level of output, resulting in an increase in equilibrium output. Therefore, the best choice is A) It rises.

According to Keynes, the Policy of Incurring Budget Deficits Will