In the traditional Keynesian model, an increase in taxes leads to all of the following EXCEPT
A)a decrease in aggregate demand.
B)a lower price level.
C)a decrease in consumption.
D)lower real GDP.

Question

Quizplus · Accepted Answer

In the traditional Keynesian model, an increase in taxes will decrease consumption which will lead to a decrease in aggregate demand and in turn will lower real GDP. However, it will not necessarily lead to a lower price level because prices are sticky in the short run in this model.

In the Traditional Keynesian Model, an Increase in Taxes Leads