According to the traditional Keynesian analysis, if the government increases spending by $20 million, then
A) consumption will increase, and so total expenditures will increase by more than $20 million.
B) consumption will decrease, and so total expenditures will increase by less than the $20 million.
C) consumption will remain the same, and so total expenditures will increase by exactly $20 million.
D) consumption will increase or decrease, and so total expenditures will increase or decrease depending on the change in consumption.

Question

Quizplus · Accepted Answer

According to Keynesian analysis, an increase in government spending will lead to an increase in aggregate demand, which includes consumption. An increase in government spending will lead to an increase in income for the recipients of government spending, who will in turn increase consumption. Therefore, total expenditures will increase by more than $20 million.

According to the Traditional Keynesian Analysis, If the Government Increases