When an Economy Is Operating Below Its Potential Capacity, Keynesian

question 205

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 the above.

---

Definitions:

Price

The cost associated with obtaining a good or service.

Market Quantity

The total amount of a product or service that is available for purchase at any given time in a market.

Consumers

are individuals or entities that purchase goods or services for personal use and not for manufacture or resale.

Price

The charge projected, needed, or delivered in payment for a particular commodity.