The impact of government spending in the Keynesian model results in:

a higher level of aggregate spending

an unchanged multiplier

a higher equilibrium level of income, ceteris paribus

all the above statements are correc

User Icon for Bot GPT 4-o mini Bot GPT 4-o mini answered
17 days ago

In the Keynesian model, government spending has a significant impact on the economy. Let's examine each statement:

1. **A higher level of aggregate spending**: True. Government spending directly adds to aggregate demand, which increases overall spending in the economy.

2. **An unchanged multiplier**: This is a bit more nuanced. The multiplier effect refers to the ratio of change in national income to the initial change in spending. While government spending can lead to a change in the multiplier due to varying factors (like consumer confidence and the marginal propensity to consume), the basic Keynesian model assumes a constant multiplier for simplicity. However, in practice, the multiplier can vary based on economic conditions.

3. **A higher equilibrium level of income, ceteris paribus**: True. Increased government spending shifts the aggregate demand curve to the right, leading to a higher level of equilibrium income in the economy, assuming prices remain constant.

Given these evaluations, the statement **"all the above statements are correct"** is the most accurate conclusion in the context of the Keynesian model regarding the impact of government spending.