Question

The United States loses 2 million jobs over a two-year period. The federal government’s income tax revenues decline as a result, and the economy begins to go into a downturn. Which action describes a Keynesian response to this scenario?

A Lower taxes on the middle class and expand government transportation projects.

B Sell a large amount of bonds to increase government spending.

C Raise taxes on corporate profits, and cut social welfare spending.

D Reduce interest rates on government loans to stimulate borrowing.

Answer 1

"A"

As per the keynesian policies the government will take a lead in the expenditure and lower the taxes and increase the transportation project, it will be considered as a expansionary fiscal policy