ECONOMICS
FISCAL POLICY
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
spend more than it taxes when saving exceeds investment
|
|
|
maintain a balanced budget in order to stabilise the economy
|
|
|
spend more than it taxes in order to improve welfare and social equity
|
|
|
None of the above
|
Detailed explanation-1: -Keynesians believe that, because prices are somewhat rigid, fluctuations in any component of spending-consumption, investment, or government expenditures-cause output to change. If government spending increases, for example, and all other spending components remain constant, then output will increase.
Detailed explanation-2: -Income in the current period is defined by Keynes as equal to current Investment plus current Consumption expenditure. Saving in the current period more-over is defined as equal to current income minus current Consum-ption. From the above two equations we can derive the conclusion that Saving is equal to investment.
Detailed explanation-3: -To create jobs and boost consumer buying power during a recession, Keynes held that governments should increase spending, even if it means going into debt. Critics attack Keynesian economics for promoting deficit spending, stifling private investment, and causing inflation.
Detailed explanation-4: -According to the Keynesian theory of Investment, the firm determines the optimal amount of Investment by taking into consideration the marginal efficiency of capital and the rate of Interest.