According to the Traditional Keynesian School of Thought, Expansionary Fiscal

question 2

Multiple Choice

According to the traditional Keynesian school of thought, expansionary fiscal and monetary policy will:

• A)increase interest rates, thereby shifting the investment function to the right.
• B)reduce both consumption and investment spending, thereby eliminating all inflationary pressures.
• C)reduce investment spending, thereby stabilizing the aggregate supply shocks.
• D)stimulate both consumption and investment spending, thereby increasing aggregate demand.
• E)shift the aggregate demand curve to the left, thereby reducing the unemployment rate.

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Definitions:

Interest-Rate Cost-Of-Funds

The cost incurred by financial institutions to borrow funds, which influences the interest rates they charge for loans and mortgages.

Perfectly Elastic

A situation in market economics where the quantity demanded or supplied of a good changes infinitely in response to any change in price.

Market Interest Rates

The prevailing rates at which borrowers can obtain loans and lenders can offer loans in the financial market, depending on supply and demand dynamics.

Inverted-U Theory

A theory suggesting that there is an optimal level of certain factors (such as stress or creativity) beyond which performance or efficiency begins to decline.