Reference no: EM132550652

Suppose in 2020 the U.S. GDP falls by $863.91 billion below where it was before the recession started. If the marginal propensity to consume is .55, a Keynesian would recommend that the government _______ to fix the recession? What would Friedrich Hayek say about this plan?

a. $91.13 billion; He would disagree, arguing that higher taxes should be implemented instead, with the money going towards relief programs for the poor.

b. $2.22 trillion; He would disagree, arguing that there is no multiplier effect from government spending on infrastructure.

c. $863.91 billion; He would agree, but would recommend lower taxes as well as the increase in spending.

d. $389.14 billion; He would disagree, arguing that the long run effect of more government spending is an erosion of liberty.

e. None of the above because Hayek never commented on what should be done about recessions.