When an Economy Is Operating Below Its Potential Capacity, Keynesian

question 222

Multiple Choice

When an economy is operating below its potential capacity, Keynesian economists argue that:

• A)taxes should be raised if the government is currently running a budget deficit.
• B)taxes should be lowered but only if the government is running a budget surplus.
• C)the government should cut taxes and\or increase spending in order to stimulate aggregate demand.
• D)all of these.

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Definitions:

Raw Materials

The unprocessed natural materials or substances used in the initial stages of production or manufacturing.

Cost System

A method used to allocate costs to products, services, projects, or departments to facilitate financial analysis, budgeting, and managerial decision-making.

Gallons

A unit of volume measurement used primarily for liquids, commonly used in the United States.

Work in Process

Inventory representing partially finished goods that are in the process of being converted from raw materials to complete products.