The introduction of government sector in the Keynesian model assumes that:

Question

there is no relationship between government spending and total income

government spending is autonomous

it has no impact on the size of the multiplier

all the above statements are correct

Answer 1

In the Keynesian model, the introduction of the government sector typically assumes that:

• Government spending is autonomous: This means that government spending is independent of current income levels and can influence total income and output through its direct spending effects on the economy.

Therefore, the correct statement would be that government spending is autonomous.

• The statement that "there is no relationship between government spending and total income" is incorrect, as government spending does affect total income.

• The statement that government spending "has no impact on the size of the multiplier" is also incorrect. In the Keynesian framework, government spending increases the size of the multiplier effect because it injects additional funds into the economy, leading to increased aggregate demand.

Thus, the answer is government spending is autonomous. The option stating "all the above statements are correct" is not true.