Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Keynes argued that government deficit spending could counteract situations in which private sector aggregate demand was not sufficient to maintain or restore full employment. The

Keynes argued that government deficit spending could counteract situations in which private sector aggregate demand was not sufficient to maintain or restore full employment.The key to this, Keynes said, was government injecting additional spending into the economy, and then relying on the marginal propensity to consume and the expenditure multiplier. Explain how Keynes argued this worked and why? Suppose that the government runs a $1,000 budget deficit, injecting that much more spending in the economy. If the marginal propensity to consume were to be, say, 80 percent, what would be the final, full increase in aggregate income in the economy? How much of it would in the form of additional consumption expenditures, and how much in the form of additional savings?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Accounting A Business Planning Approach

Authors: Noah P. Barsky, Jr. Anthony H. Catanach

2nd Edition

1516506286, 978-1516506286

More Books

Students also viewed these Accounting questions

Question

Distinguish between intrinsic and extrinsic teleology.

Answered: 1 week ago