Question

Which of the following scenarios from the Keynesian perspective increases?

1) Government spending increases
2) Tax rates decrease
3) Consumer spending decreases
4) Interest rates increase

Answer 1

From the Keynesian perspective, an increase in government spending and a decrease in consumer spending would contribute to an increase in income and price levels. However, an increase in interest rates would not be seen as a solution to a recession.

Step-by-step explanation:

In the Keynesian framework, an increase in government spending is seen as a solution to a recession. By increasing government spending, it stimulates consumption and investment, which shifts the aggregate demand curve to the right, resulting in an increase in income and price levels.

On the other hand, a decrease in consumer spending is viewed as a factor that contributes to a recession from the Keynesian perspective. When consumer spending decreases, it leads to a decrease in aggregate demand, which can result in lower income and price levels.

From the Keynesian perspective, an increase in interest rates would not be seen as a solution to a recession. Higher interest rates discourage borrowing and spending, which can further decrease aggregate demand and potentially deepen a recession.