Question

g Based on the Keynesian model, one reason to support government spending increases over tax cuts as a tool for stimulating the economy is: Group of answer choices the government-spending multiplier is smaller than the tax multiplier. the government-spending multiplier is larger than the tax multiplier. tax cuts do not cause the budget deficit to increase. increases in government spending do not cause the budget deficit to increase.

Answer 1

The answer is: The multiplier of public spending is greater than the tax multiplier.

Step-by-step explanation:

Unemployment is caused by insufficient global demand. Therefore, to combat unemployment, aggregate demand (Da) will have to be increased, and for this, according to Keynes' formula, the following components must be acted on:

-Increase demand for consumer goods (C)

To stimulate consumption, taxes will have to be reduced, thus causing an increase in the disposable income of families.

-Increase the demand for investment goods (I)

This increase will be achieved by reducing the cost of money; in other words, lowering interest rates, thus encouraging companies to invest.

-Increase public sector demand (G)

It comes from the increase in public spending by the State (more roads, more hospitals).

-Increase the demand of international markets (X-M)

To promote exports, the exchange rate will have to be reduced. Increasing exports boosts domestic production.