According to Classical Macroeconomic Theory

question 14

Multiple Choice

According to classical macroeconomic theory,

• A)output is determined by the supplies of capital and labor and the available production technology.
• B)for any given level of output,the interest rate adjusts to balance the supply of,and demand for,loanable funds.
• C)given output and the interest rate,the price level adjusts to balance the supply of,and demand for,money.
• D)All of the above are correct.

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Definitions:

Income Effect

The impact that changes in either personal or economic income have on how much of a good or service is sought after.

Quantity of Labor

The total hours of work or number of workers employed by a firm or within an economy, which can influence production output levels.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute away from more expensive items.

Labor Supply Curve

A graphical representation showing the relationship between the number of hours workers are willing to work and the wage rate, typically illustrating that as wages increase, workers will supply more labor hours.