Table 11.1-Aggregate supply and demand
-In Table 11.1,according to Keynes,which of the following policy options would be most appropriate for the economy if full-employment output occurred at 1600?
A) A decrease in the money supply to control inflation.
B) An increase in tax incentives to train workers.
C) An increase in the level of government spending.
D) A laissez faire approach.

Question

Table 11.1-Aggregate supply and demand 
-In Table 11.1,according to Keynes,which of the following policy options would be most appropriate for the economy if full-employment output occurred at 1600?
A) A decrease in the money supply to control inflation. 
B) An increase in tax incentives to train workers. 
C) An increase in the level of government spending. 
D) A laissez faire approach.

Quizplus · Accepted Answer

According to Keynesian theory, when the economy is at full-employment output, the only method to stimulate demand would be through an increase in the level of government spending. This is because in Keynesian economics, government spending is seen as a means of injecting demand into the economy and stimulating growth. The other options (a decrease in the money supply, an increase in tax incentives, and a laissez-faire approach) would not be effective in stimulating demand in this scenario.

Table 11.1-Aggregate Supply and Demand