classical economists current, interest, increase, financing, government

TheMBAGlover

according to new classical economists, is financing a reduction in current taxes by government borrowing likely to result in an increase in:


a. no (aggregate demand ) no ( the real interest rate)
b. no ( aggregate demand ) yes ( the real interest rate)
c. yes ( aggregate demand ) no ( the real interest rate)
d. yes ( aggregate demand ) yes ( the real interest rate)



ANSWER














a.

page 348 in economics book in cfai books says that minimizing effects of taxes causes the economy to expand.... so it should be c or d.



Edited 3 time(s). Last edit at Sunday, May 23, 2010 at 02:21PM by homie.

cyber21

financing lower levels of tax revenue with more borrowing (versus raising tax RATES which does) has no effect in the classical view.

RobertA

macro economic views have nothing to do with inflation (price level) for the purpose of this test...so that eliminates b and d...and aggregate demand is influenced by technological progress, so unless the classical economists believe funding govn't deficits will raise rates and hinder investment into technology thus slowing demand, it will most likely have no effect on either from their simple minds