The economy is in a recessionary gap and a Keynesian economist advocates expansionary fiscal policy.What is a likely reason this economist advocates expansionary fiscal policy?

Question

Quizplus · Accepted Answer

A Keynesian economist would advocate expansionary fiscal policy if the economy is stuck in a recessionary gap, meaning that the equilibrium level of output is below potential output. In this situation, there is likely to be a high level of unemployment and idle resources in the economy. The economist would argue that government intervention, such as increased government spending or tax cuts, could boost aggregate demand and stimulate economic growth, without causing significant crowding out of private investment. In this case, the economist believes that there will be no crowding out, as the unused resources in the economy can be put to use without pushing up interest rates significantly.

The Economy Is in a Recessionary Gap and a Keynesian