Question

7.   Answer True or False for each of the following.

Please Explain why

Government spending can raise Aggregate Demand and real GDP in the Classical model.

Classical economists said that the velocity of money is very volatile.

Classical Economists claim interest rates guarantee that savings will equal investment.

According to money neutrality, the Ms determines nominal but not real variables.

According to Say’s Law, “demand creates its own supply”.

Classical economists said that markets are highly competitive.

In the Classical model monetary policy is cannot change AD.

Classical Economists claim wages and prices adjust rapidly to new conditions.

Classical influence starts to wane during the 1960s.

Laissez-faire means the government can do anything it wants to the economy.

Answer 1

7) a) False

Government expenditure cannot increase the aggregate demand and real GDP in the classical model because it depends on the factors like the supply of labor and technology and capital in the economy which are fixed.

b) False

The velocity of money is considered as constant in the classical economy.

c) True

Money supply can only determine the nominal value leaving the real values unchanged. That is called classical dichotomy.

d) True

It's how the law is been made. (no explanation in this one.)

e) True

According to classical economists, the market is highly competitive and adjusts quickly to changed the variable price.

f) False

Monetary policy was used to change the price, hence the demand for things in the classical economy

g) True

Thigs adjust very quickly in the classical economy and remains at equilibrium all the time.

h) False

It wanned after great depression in the 1930s

i) False

It means the government can't do anything.