In the traditional Keynesian model, if the government cuts taxes, then
A)both consumption and real Gross Domestic Product (GDP)will increase.
B)both consumption and real Gross Domestic Product (GDP)will decrease.
C)consumption will increase but Gross Domestic Product (GDP)will decrease.
D)consumption will decrease but Gross Domestic Product (GDP)will increase.

Question

Quizplus · Accepted Answer

In the traditional Keynesian model, cutting taxes increases disposable income, which in turn leads to an increase in consumption. The increase in consumption leads to additional demand for goods and services which in turn increases the level of real Gross Domestic Product (GDP). Therefore, both consumption and real GDP will increase if the government cuts taxes.

In the Traditional Keynesian Model, If the Government Cuts Taxes