Using the Keynesian approach, if leakages from the spending stream are less than injections, the current level of output is:
A) less than the equilibrium level of output, and will increase.
B) less than the equilibrium level of output, and will decrease.
C) greater than the equilibrium level of output, and will increase.
D) greater than the equilibrium level of output, and will decrease.

Question

Quizplus · Accepted Answer

In the Keynesian framework, if leakages (such as savings, taxes, and imports) are less than injections (such as investment, government spending, and exports) into the economy, it means that there is more being injected into the economy than is being taken out. This situation leads to an increase in aggregate demand, which in turn increases the level of output. Therefore, the current level of output is less than the equilibrium level, and it will increase to reach a new equilibrium.

Using the Keynesian Approach, If Leakages from the Spending Stream