In the Neoclassical Model with Fixed Income, If There Is

question 103

Multiple Choice

In the neoclassical model with fixed income, if there is a decrease in government spending with no change in taxes, then public saving ______ and private saving ______.

• A) increases; increases.
• B) increases; does not change
• C) decreases; increases
• D) decreases; does not change

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Definitions:

Diminishing Returns

A principle stating that as more of a variable input is combined with a fixed input, the incremental gains in output will eventually decrease.

Increasing Returns

This refers to a scenario in economics where, as the quantity of input increases, the rate of output increases at a faster rate, leading to economies of scale.

Long-Run Total Cost

The aggregate cost of production when all factors of production are variable and the scale of operation can change.

Units of Variable K

In economics, this refers to units of a variable factor of production (K often denotes capital), where the quantity can be changed in the short run to increase or decrease production.