The keynesian model predicts

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Suppose the government spends $500 million on a project that has absolutely no value to the country. Which statement about this project is correct?

A. If the marginal propensity to save in the economy is equal to 0.25, the Keynesian model predicts that this project will result in a $2000 million increase in GDP.

B. If the government raised the money for this project by printing $500 million in bonds and selling them to the Fed, the effect is exactly the same as if they sold the bonds to households.

C. The project will increase aggregate supply because it will increase the total quantity of goods and services supplied in the economy.

D. Under the assumptions of the classical model, the result of this project will be increases in both the price level and equilibrium GDP.

E. If taxes were raised $500 million to fund this project, the Keynesian model predicts that this will have no net effect on output in the economy.

Reference no: EM131174280

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