If output is less than full employment in the Keynesian model,what is needed to restore full employment?
A)an increase in the price level
B)an increase in aggregate demand
C)a reduction in government expenditures
D)an increase in aggregate supply

Question

Quizplus · Accepted Answer

In the Keynesian model, output below full employment is due to insufficient aggregate demand. Therefore, to restore full employment, there must be an increase in aggregate demand. This can be achieved through monetary or fiscal policies such as increasing money supply, lowering interest rates, or increasing government spending. Choice A (an increase in price level) would only cause inflation, and choice C (a reduction in government expenditures) would further reduce aggregate demand which would exacerbate the problem. Choice D (an increase in aggregate supply) would only shift the aggregate supply curve and not affect aggregate demand, hence would not directly restore full employment.

If Output Is Less Than Full Employment in the Keynesian