According to the Keynesian view, if real GDP is slowing and the economy appears to be headed for a recession, a reduction in tax rates is
A) highly appropriate because it will stimulate aggregate demand and, thereby, help to strengthen the economy.
B) highly inappropriate because it will either reduce the size of the budget surplus or increase the size of the deficit.
C) not very important because the "demand stimulus effects" of the tax cut will be largely offset by additional borrowing.
D) not very important because the "demand stimulus effects" of lower current taxes will be largely offset by the expectation of higher taxes in the future.

Question

Quizplus · Accepted Answer

According to the Keynesian view, during an economic slowdown, a reduction in tax rates can stimulate aggregate demand and increase consumer spending, which ultimately helps to strengthen the economy. The idea is that people will have more disposable income and will be more likely to spend it, leading to an increase in demand for goods and services.

According to the Keynesian View, If Real GDP Is Slowing