Multiple Choice
Why is GDP per capita commonly used as an estimate of the average standard of living in a country?
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1. Introduction to Macroeconomics
Introduction to Economics
Multiple Choice
During times of economic trouble, which of the following actions is most likely to be taken by a government following Keynesian economic principles?
A
Increase government spending to stimulate aggregate demand
B
Raise taxes to balance the budget
C
Implement trade restrictions to protect domestic industries
D
Reduce the money supply to control inflation
Verified step by step guidance1
Step 1: Understand the core idea of Keynesian economics, which emphasizes the role of government intervention to manage economic fluctuations, especially during downturns.
Step 2: Recall that Keynesian theory advocates for increasing aggregate demand during economic troubles to boost output and reduce unemployment.
Step 3: Identify the policy tools that can increase aggregate demand, such as increasing government spending or cutting taxes, which put more money into the economy.
Step 4: Evaluate the options given: increasing government spending directly raises aggregate demand, while raising taxes would reduce disposable income and aggregate demand, making it less suitable during economic trouble.
Step 5: Conclude that the Keynesian approach most likely involves increasing government spending to stimulate aggregate demand, rather than reducing the money supply or implementing trade restrictions.
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