According to the traditional Keynesian analysis, if the government increases spending by $10 million, then
A)consumption will increase, and so total expenditures will increase by more than $10 million.
B)consumption will decrease, and so total expenditures will increase by less than the $10 million.
C)consumption will remain the same, and so total expenditures will increase by exactly $10 million.
D)consumption will increase or decrease, and so total expenditures will increase or decrease depending on the change in consumption.

Question

Quizplus · Accepted Answer

According to traditional Keynesian analysis, an increase in government spending will lead to an increase in aggregate demand through the multiplier effect. The initial increase in government spending will result in an increase in income and consumption, which will in turn increase demand, resulting in more spending and income. This process will continue until the full effects of the multiplier have been realized, resulting in a total increase in spending that is greater than the initial increase in government spending. Therefore, consumption will increase, and total expenditures will increase by more than $10 million.

According to the Traditional Keynesian Analysis, If the Government Increases