According to the theory of new classical economics, if business sentiment and investment spending decrease

According to the theory of new classical economics, if business sentiment and investment spending decrease, the aggregate demand curve _______ , the price level falls, and aggregate output _______

shifts right; decreases

shifts right; increases

shifts left; remains constant

shifts left; decreases

Expert Solution

Ans.- (C)

if business sentiment and investment spending decrease,then AD curve shifts to the left. But we know that AS curve is vertical so aggregate output remains constant.

Rahul Sunny answered 2 years ago

New Classical Economics (rational expectations) and New Keynesian Economics are similarly rooted in original Classical and...

New Classical Economics (rational expectations) and New Keynesian Economics are similarly rooted in original Classical and Keynesian economics. Explain and illustrate how these latest manifestations of two diametrically opposed positions, the New Classical rational expectations model and the new Keynesian model: (1) remain true to their respective Classical and Keynesian roots about the inherent stability of the macro economy and the effectiveness of demand management; and (2) at the same time altered the traditional Classical and traditional Keynesian analysis.

What are the Differences between New Keynesian economics and New classical economics as they relate to...

What are the Differences between New Keynesian economics and New classical economics as they relate to ad-as model?

a) “According to the long-run classical model, there will be a decrease in the world interest...

a) “According to the long-run classical model, there will be a decrease in the world interest rate and the world level of investment when the aging populations of industrial countries start running down their savings and, at the same time, the investment appetite of emerging economies begins to slow down.” True/False, explain with the aid of one diagram for the world market for loanable funds. (10 points) Note: The world as a whole is a closed economy. b) A new...

If, according New Classical economists, fiscal policy is inadequate because any government spending increase causes: a....

If, according New Classical economists, fiscal policy is inadequate because any government spending increase causes: a. most households save rather than spend. b. business to decrease their investments. c. private individuals to spend more and save less.

According to Chapter 7 “The Spending Allocation Model”, a decrease in government spending results in, among...

According to Chapter 7 “The Spending Allocation Model”, a decrease in government spending results in, among other things, an increase in investment in the long run. Suppose the capital stock is $1 trillion and a fall in government spending causes a $50 billion rise in investment. Determine the effect of the change in government purchases on long-run per capita output growth, using the growth accounting formula. (Assume that the coefficient on capital in the growth accounting formula is one-third.) Suppose...

How is Investment determined according to the Classical Model?

An increase in savings by consumers is seen as a(n) decrease in investment spending in the...

An increase in savings by consumers is seen as a(n) decrease in investment spending in the economy increase in government spending in the economy. decrease in exports in the economy. increase in imports in the economy. leakage in spending in the economy. Question 2(Multiple Choice Worth 1 points) If changes in the stock market cause an increase in consumer wealth, we would expect to see a/an increase in consumer indebtedness. increase in consumer card balances. increase in consumer spending. decrease...

An economy is initially at full employment, but a decrease inplanned investment spending pushes the...

An economy is initially at full employment, but a decrease in planned investment spending pushes the economy into recession. Assume that the MPC of this economy is .50 and that the multiplier is 2.00.How large is the recessionary gap after the fall in planned investment?By how much would the government have to change its purchases to restore the government to full employment?Alternatively, by how much would the government have to change taxes?

Answer the following problem about Behavioral Economics that we discussed in class: New-classical Economics Behavioral Economics...

Answer the following problem about Behavioral Economics that we discussed in class: New-classical Economics Behavioral Economics Rationality Stability of Preferences Capability for making mental calculations Ability to assess future options and possibilities Strength of willpower Degree of selfishness Fairness 1. Using your own words, fill in the table for new classical economics column. 2. Using your own words, now fill in the table for the behavioral economics column. 3. Give an example of how you and/or a friend fight self-control...

Compare and contrast: Business cycle theory--Keynesian cycle, Monetarist cycle, new classical cycle, new Keynesian cycle, and...

Compare and contrast: Business cycle theory--Keynesian cycle, Monetarist cycle, new classical cycle, new Keynesian cycle, and real business cycle

Question