Chapter 35, Problem 4CYU

To determine

The part of the Keynesian statement when an aggressive monetary policy states "tax cuts can boost economic activity by raising after-tax income and enhancing incentives to work, save, and invest."

Explanation of Solution

The main aim of monetary policy is to control the supply of money in an economy to achieve the targeted economic growth.

Therefore, according to the given statement when Keynes supported the fiscal policy as a tool to lessen the impact of business cycle variations, then here, using fiscal policy in the form of tax cuts to stimulate economic activity is part of the Keynesian statement.

And, in addition to praising aggressive monetary policy, the endorsement of strong monetary policy would not be part of the Keynesian statement because Keynes was concerned that a liquidity trap would limit the ability of monetary policy to affect interest rates.

Economics Concept Introduction

Introduction: Price level is the average current price of goods and services in the economy that are produced in a particular interval.

According to Keynesians, the prices are can rigid as there are changes in any aspect of spending, whether government, investment, or consumer spending, they affect the output to change.