Keynesians advocate that the government can stimulate the economy by which means?

• A. Increasing public spending or cutting taxes.
• B. Reducing government spending.
• C. Preventing all regulation.
• D. Increasing tariffs.

Answer: (A)

Keynesian economics shows that when private demand is weak, the government can lift the economy through expansionary fiscal policy. Increasing public spending injects demand directly into the economy, while cutting taxes leaves households and firms with more disposable income to spend and invest. Both actions raise aggregate demand, which, through the multiplier effect, leads to higher output and more jobs. Spreading the impact more widely is possible because the initial government outlay or tax relief becomes income for others who then spend part of it, boosting overall spending.

The other options would generally dampen or redirect demand rather than expand it. Reducing government spending lowers overall demand. Efforts to prevent regulation or to impose tariffs change economic conditions in ways that don’t primarily aim to raise domestic aggregate demand in the short run.