The government of Imbrusia introduces new taxes and cuts spending to mitigate recession. Which of the following is likely to happen in Imbrusia according to the Keynesians?

Question

Quizplus · Accepted Answer

According to Keynesian theory, during a recession, the government should increase spending and lower taxes to stimulate aggregate demand. By introducing new taxes and cutting spending, the government of Imbrusia is doing the opposite of what Keynesian theory suggests, which means that it would likely lead to a decrease in aggregate demand and eventually cause an increase in unemployment.

The Government of Imbrusia Introduces New Taxes and Cuts Spending