The New Classical Model Implies That a

question 1

Multiple Choice

The new classical model implies that a

• A) budget surplus will effectively retard inflation emanating from excess demand.
• B) budget deficit will increase the real interest rate.
• C) substitution of debt for tax financing will leave aggregate demand and real output unchanged.
• D) planned budget deficit will be a highly effective tool to combat a recession.

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Definitions:

Total Product

The aggregate quantity of output produced by an economic unit from a given set of inputs during a specific period of time.

Variable Cost

Costs that change in direct proportion to changes in a firm’s level of production.