Question

During a recession, Congress passes legislation to spend money by increasing unemployment benefits and funding infrastructure...

During a recession, Congress passes legislation to spend money by increasing
unemployment benefits and funding infrastructure projects such as improving
roads and airports. Keynesian economists believe that this legislation will, in the short run, cause:

the price level to fall and Real GDP to fall

the price level to fall and Real GDP to rise

the price level to rise and Real GDP to fall

the price level to rise and Real GDP to rise

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Answer #1

When Congress decides to spend money by increasing unemployment benefits and funding infrastructure projects such as improving roads and airports , it means that expansionary fiscal policy is being adopted to fight recession .

Keynes advocated for increased government expenditures and lower taxes to stimulate demand . It shifts the aggregate demand curve to the right , causing the rise in price level and rise in Real GDP , and thus brings economy out of recession .

the price level to rise and Real GDP to rise

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