New Classical Economists Believe That an Increase in Deficit Financing

question 2

Multiple Choice

New classical economists believe that an increase in deficit financing by the government will

• A) reduce government spending.
• B) increase consumption.
• C) reduce future taxes.
• D) increase savings.

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Definitions:

Short Run

A period in which at least one input (e.g., capital) is fixed, limiting the capacity for output adjustment.

Long-Run Cost Function

An economic model that describes how production costs change over time as all inputs can be varied by the producer.

Marginal Cost Function

A mathematical relationship describing how the cost of producing one additional unit of output varies as production scale changes.

Optimal Output

The level of production that maximizes a firm's profit, where marginal revenue equals marginal cost.