Asked by chisom chikezie on May 12, 2024
Verified
According to Keynes,the adoption of an expansionary fiscal policy will cause:
A) both equilibrium price level and equilibrium output to rise.
B) equilibrium price level to rise and equilibrium output to fall.
C) equilibrium price level to fall and equilibrium output to rise.
D) both equilibrium price level and equilibrium output to fall.
E) equilibrium price level to remain the same and equilibrium output to fall.
Equilibrium Output
The level of production at which the quantity of goods produced equals the quantity of goods demanded.
Expansionary Fiscal Policy
A government policy aimed at stimulating economic growth by increasing public spending, cutting taxes, or both, to boost aggregate demand.
Equilibrium Price Level
The cost at which the amount of products offered matches the amount of products requested.
- Appreciate the cornerstone principles of Keynesian economics and its way of addressing recessions by means of fiscal policy strategies.
- Recognize the impact of fiscal policies on the equilibrium price levels and outputs within an economy.
Verified Answer
AS
Aimun ShakilMay 13, 2024
Final Answer :
A
Explanation :
According to Keynes, an expansionary fiscal policy will increase government spending and/or decrease taxes, which will increase aggregate demand. This increase in aggregate demand will lead to an increase in both equilibrium price level and equilibrium output, as both demand and supply shift to the right.
Learning Objectives
- Appreciate the cornerstone principles of Keynesian economics and its way of addressing recessions by means of fiscal policy strategies.
- Recognize the impact of fiscal policies on the equilibrium price levels and outputs within an economy.