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Question
Suppose there are two policy options facing a vote in the Senate. In the first, government spending will increase $50 billion, while the second option is to cut taxes by $50 billion. A Keynesian economist would argue for
A) the tax option because it also affects the incentives workers face. Long -run aggregate supply will increase with the tax cut, but not with the spending increase.
B) the tax option because it is easier to pass. The effects on total spending would be identical.
C) the spending option because it wonʹt affect the deficit the way the tax cut would.
D) the spending option because it has a bigger impact on total spending. The spending directly raises total spending plus it works through the multiplier, while the tax cut only works through the multiplier.
Answer
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