Question

Econ final Which of the following government actions is likely to stimulate the economy?

A) Increase income taxes and increase government spending
B) Decrease income taxes and decrease government spending
C) Decrease government spending and increase incomes taxes
D) Increase government spending and decrease income taxes

Answer 1

Answer: (D).

Increase government spending and decrease income taxes

Step-by-step explanation:

According to John Maynard Keynes, when an economy is in depression (economic activities are low and unemployment is high), people and businesses are afraid to spend and invest.

Therefore the government should increase its spending and reduce income tax. This will increase demand and create employment thereby stimulating the economy.