When an Economy Is Operating Below Its Potential Capacity, Keynesian

question 104

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 expenditures in order to stimulate aggregate demand.
• D) both a and b are correct.
• E) all of the above are correct.

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Definitions:

Neonate

A term used to describe a newborn baby, typically within the first 28 days of life.

Germinal Period

Also referred to as the period of the zygote; refers to the first 2 weeks after conception.

Zygote

The initial cell formed when a new organism is produced by the joining of a male sperm and a female ovum.

Blastocyst

An early stage embryo consisting of a sphere of cells surrounding a fluid-filled cavity and a cluster of cells inside known as the inner cell mass, which eventually develops into the fetus.