According to Keynesian theory,the correct fiscal policy to stimulate the economy would be to
A)Raise taxes to increase aggregate demand.
B)Increase the money supply to increase aggregate supply.
C)Increase government expenditures to increase aggregate demand.
D)Lower taxes to increase aggregate supply.

Question

Quizplus · Accepted Answer

According to Keynesian theory, the correct fiscal policy to stimulate the economy is to increase government expenditures, which would lead to an increase in aggregate demand. This increase in demand would then lead to an increase in output and employment, and eventually lead to economic growth. Raising taxes would reduce disposable income and decrease consumption, which would lead to a decrease in aggregate demand. Increasing the money supply would increase aggregate supply, but it would not necessarily increase demand, and therefore would not stimulate the economy. Lowering taxes would increase disposable income and consumption, but it would not necessarily increase investment or government spending, and therefore would not stimulate the economy as effectively as increasing government expenditures.

According to Keynesian Theory,the Correct Fiscal Policy to Stimulate the Economy