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

Question

a higher level of aggregate spending

an unchanged multiplier

a higher equilibrium level of income, ceteris paribus

all the above statements are correct

Answer 1

The correct answer is "all the above statements are correct."

In the Keynesian model:

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

2. An unchanged multiplier: The government spending multiplier represents how much additional economic activity is generated from an initial increase in spending. While the size of the multiplier may vary based on the context (e.g., the state of the economy), the fundamental concept asserts that increased government spending contributes to increased economic output.

3. A higher equilibrium level of income, ceteris paribus: An increase in government spending leads to higher aggregate demand, which in turn raises the equilibrium level of income in the economy, assuming other factors remain constant (ceteris paribus).

Thus, all the statements reflect the effects of government spending in the Keynesian model.