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    Question

    During a severe recession, businesses are reluctant to

    invest, and consumer spending has declined significantly. Unemployment rates are high, and there is a general lack of confidence in the economy. According to Keynesian economics, what would be the most appropriate government response in this situation?
    A Reduce government spending and increase taxes. Correct Answer Incorrect Answer
    B Increase government spending and decrease taxes. Correct Answer Incorrect Answer
    C Maintain a balanced budget. Correct Answer Incorrect Answer
    D Rely on the free market to self-correct. Correct Answer Incorrect Answer
    E Implement wage and price controls. Correct Answer Incorrect Answer

    Solution

    Keynesian economics suggests that during a recession, the government should increase spending and decrease taxes to stimulate aggregate demand, boost economic activity, and reduce unemployment.

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