Suppose aggregate demand is too low to bring about the Natural Real GDP level.A Keynesian policy prescription would call for a(n)_____________________ to close this recessionary gap.
A) increase in government spending
B) decrease in government spending
C) increase in taxes
D) decrease in taxes
E) a or d

Question

Quizplus · Accepted Answer

Keynesian economics suggests that during periods of low aggregate demand, which leads to unemployment and underutilized resources, the government should intervene to stimulate the economy. This can be achieved through an increase in government spending (A) to directly boost demand or a decrease in taxes (D) to increase disposable income for consumers and businesses, thereby indirectly boosting demand. Both measures aim to close the recessionary gap by increasing aggregate demand.

Suppose Aggregate Demand Is Too Low to Bring About the Natural