The traditional Keynesian approach concludes that an increase in government spending
A) generates a greater increase in investment spending.
B) generates an equal increase in total spending because government spending makes up part of total spending.
C) generates a greater increase in total spending because consumption spending increases as incomes increase.
D) has no effect on total spending because consumers increase saving by an equal amount.

Question

Quizplus · Accepted Answer

The traditional Keynesian approach states that an increase in government spending will lead to an increase in total spending because as government spending increases, incomes increase and consumption spending will also increase. This multiplier effect leads to a greater increase in total spending than just the initial increase in government spending.

The Traditional Keynesian Approach Concludes That an Increase in Government