In the traditional Keynesian model, an increase in government spending leads to all of the following EXCEPT

Question

Quizplus · Accepted Answer

In the traditional Keynesian model, an increase in government spending leads to an increase in aggregate demand, an increase in consumption, and higher real GDP. However, it should not cause an increase in the price level. This is because in the short run, prices are assumed to be sticky and not flexible. Therefore, an increase in aggregate demand only leads to an increase in output and employment, without causing an increase in prices.

In the Traditional Keynesian Model, an Increase in Government Spending