According to Keynes,an unbalanced budget is appropriate in all of the following situations except
A)The economy is below full employment.
B)Leakages and injections are out of balance.
C)Macro equilibrium is above full employment.
D)The economy is at full employment.

Question

Quizplus · Accepted Answer

According to Keynes, an unbalanced budget (fiscal deficit or surplus) is appropriate when the economy is below full employment, leakages and injections are out of balance, or macro equilibrium is above full employment. However, when the economy is at full employment (i.e. there is no remaining spare capacity), an unbalanced budget may lead to inflation and destabilize the economy. Therefore, an unbalanced budget is not appropriate in this situation.

According to Keynes,an Unbalanced Budget Is Appropriate in All of the Following