Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation

Complete Question:

Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. to use in this According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?

a. A reduction in the money supply.

b. Less government regulation.

c. Increase federal spending

d. Higher taxes.

Answer:

Higher taxes is an appropriate discretionary fiscal policy to use in this situation

Explanation:

The hypothesis that Keynesian economy is said to raise demand by the government to boost production. Keynesians assume that the primary force of an economy is customer demand. As a response, expansionary monetary policy is endorsed in principle.

The British Government at that time was strongly critical of Keynes. The government reduced social security costs and increased taxation in order to balance national accounts. This did not inspire people to invest their money, left the economy unified and unwilling to rebound and return to a prosperous state. Keynes said.

Alternatively, he proposed that the government would spend more resources to boost the appetite of customers in the economy. In addition, the total economic performance will be improved, which would lead inevitably to growth and a decrease in unemployment.