What Is the Main Difference in the Classical Model as Compared

question 169

Multiple Choice

What is the main difference in the classical model as compared to the short-run macro model?

• A) In the classical model the economy automatically operates at potential GDP while in the short run model the economy can operate at a different level of GDP
• B) In the short run model the economy automatically operates at potential GDP while in the classical model the economy can operate at a different level of GDP
• C) Fiscal policy has no effect in the short run model but is very effective in the classical model
• D) There is no difference in the predictions of the two models
• E) The classical model does a better job in predicting recessions than the short-run macro model

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Definitions:

Outcome

The result or final consequence of a sequence of actions or events.

Incremental Costs

Incremental costs are the additional costs that are incurred from producing an additional unit of product or making a decision.

Incremental Revenue

The increase in income resulting from a specific business decision, distinct from the company's base revenue level.

Overhead

Overhead refers to the ongoing administrative and general expenses of a business that are not directly tied to a specific product or service production but are necessary for the business's operations.