Question

In order to close a recessionary gap, Keynes suggested:

a. Increase government spending
b. Decrease taxes
c. Implement austerity measures
d. Privatize public services

Answer 1

Keynes suggested increasing government spending or decreasing taxes to close a recessionary gap.

Step-by-step explanation:

In a Keynesian framework, to close a recessionary gap, Keynes suggested increasing government spending or decreasing taxes. When there is a recession, the economy is operating below potential GDP, and there is a gap between current output and potential output. To close this gap and stimulate economic growth, the government can increase spending on public projects like infrastructure, education, or healthcare. This increased government spending will lead to an increase in aggregate demand (AD), which can help to reduce unemployment and stimulate economic growth.