According to the traditional Keynesian approach, if the government increases taxes, then
A)real Gross Domestic Product (GDP)will fall and the price level will remain constant.
B)real Gross Domestic Product (GDP)will fall but the price level will rise.
C)both real Gross Domestic Product (GDP)and the price level will fall.
D)real Gross Domestic Product (GDP)will remain constant but the price level will rise.

Question

Quizplus · Accepted Answer

According to the traditional Keynesian approach, an increase in taxes reduces disposable income, leading to a decrease in aggregate demand and a fall in real GDP. The price level is assumed to remain constant in the short run.

According to the Traditional Keynesian Approach, If the Government Increases