According to the New Classical View, Budget Deficits Will

question 125

Multiple Choice

According to the new classical view, budget deficits will

• A) cause real interest rates to rise, which will decrease aggregate demand, output, and employment.
• B) lead to an expansion in spending, which will stimulate both real output and employment.
• C) fail to stimulate aggregate demand because people will save more in order to pay the higher future taxes implied by the expansion in government debt.
• D) lead to inflation because the deficits expand the money supply.

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