Chapter 17, Problem 14AA

To determine

To explain: The view of Keynesian economists to reduce unemployment.

Explanation of Solution

According to Keynesian economists, the federal government should use expansionary fiscal policy and cuts its taxes in order to increase the consumption demand because the tax cuts will give more money in the hand of people.

Similarly, the government should increase direct spending and investments. Moreover, government spending and tax cut will stimulate aggregate demand. Therefore, an increase in aggregate demand will require the producer to produce more so new employment will be generated in the economy.