Question

Use the Keynesian cross to predict the impact on equilibrium GDP of a. An increase in government purchases. b. An increase in taxes. c. Equal-sized increases in both government purchases and taxes.

Answer 1

An increase in government purchases

Step-by-step explanation:

The Keynesian cross explains to us that fiscal policy has multiple impacts on income. The reason for this has been explained by many, according to consumption, that higher income is seen to lead to higher consumptions. Keynesian economics (KE) as an idea was developed before the aggregate demand/aggregate supply model was made popular.

The KE was explained using the expenditure-output approach which lays emphases on the total amount of spending in the economy