Question

The nation of Forlorn is in the middle of a severe financial crisis. The prime minister has increased government spending by trillions, in order to revive the ailing economy. Her strategy followed the economic theory known as_______________.

Answer 1

Answer:

Keynesian

Explanation:

Keynesian and classical are two economic schools, which basically shaped economic theories over the years. According to the Keynesian government must increase spending and decrease the burden of tax to gain economic growth. In the above scenario, the prime minister has increased government spending which shows that she is following Keynesian economic theory to resolve economic crises. According to Keynesian government spending can solve a crisis, as it provides employment opportunities and decreases inflation.