According to the traditional Keynesian analysis, if the government increases spending and pays for all of it by raising current taxes, then
A) aggregate demand will decrease.
B) a budget deficit will occur.
C) a budget surplus will occur.
D) aggregate demand will increase.

Question

Quizplus · Accepted Answer

According to traditional Keynesian analysis, if the government increases spending and finances it entirely through raising current taxes, aggregate demand will increase. This is because government spending directly increases aggregate demand, and while higher taxes could reduce consumption, the immediate impact of increased government spending typically outweighs this, leading to a net increase in aggregate demand.

According to the Traditional Keynesian Analysis, If the Government Increases