According the traditional Keynesian approach, an increase in government spending is effective in raising real Gross Domestic Product (GDP) if
A) the price level is fixed.
B) the price level is flexible.
C) the price level does not exist.
D) Ricardian equivalence occurs, regardless of the price level.

Question

Quizplus · Accepted Answer

In the traditional Keynesian framework, an increase in government spending is considered effective in raising real GDP under the assumption that the price level is fixed. This is because, with fixed prices, increased government spending directly boosts demand, leading to higher output and employment without causing inflation.

According the Traditional Keynesian Approach, an Increase in Government Spending