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 correc

Answer 1

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.