Suppose the economy is at a point below its institutional production possibilities frontier.To improve this situation,Keynesian economists might propose that the government should __________ expenditures,which will cause the aggregate demand curve to shift to the __________ in an attempt to close this __________ gap.
A) decrease; left; inflationary
B) increase; right; inflationary
C) decrease; right; inflationary
D) increase; right; recessionary
E) decrease; left; recessionary

Question

Quizplus · Accepted Answer

Keynesian economists recommend increasing government expenditures to stimulate demand and close a recessionary gap, as in option D. This will shift the aggregate demand curve to the right and increase output and employment. Options A, C, and E suggest decreasing government expenditures which would deepen the recessionary gap. Option B proposes increasing government expenditures but suggests that it will cause inflation which is not a desirable outcome when the economy is in a recessionary gap.

Suppose the Economy Is at a Point Below Its Institutional