Use the figure below to answer the following question(s). Figure 12-1 Refer to Figure 12-1. If the output of the economy is Y₁, which of the following would a Keynesian economist be most likely to favor? A) a reduction in government expenditures B) an increase in government expenditures C) an increase in taxes D) continuation of the current tax and expenditure policies

Question

Quizplus · Accepted Answer

According to the Keynesian theory, an increase in government expenditures can help to stimulate economic activity and close the output gap when the economy is operating below full employment levels (YS). Therefore, a Keynesian economist would be most likely to favor an increase in government expenditures in order to move the economy closer towards its potential output level.

Use the Figure Below to Answer the Following Question(s)