Classical economists argue that an increase in government expenditures will
A)shift FE line to right increasing full-employment output.
B)shift FE line to left decreasing full-employment output.
C)shift FE line to right increasing interest rate.
D)shift FE line to right decreasing labour supply.

Question

Quizplus · Accepted Answer

Classical economists believe in the concept of Say's Law, which states that supply creates its own demand. Therefore, an increase in government expenditures would increase demand and ultimately shift the FE line to the right, leading to an increase in full-employment output. This is based on the assumption that there are no long-term supply-side constraints that would limit the economy's ability to produce more output.

Classical Economists Argue That an Increase in Government Expenditures Will