According to neoclassical economists,what would happen if total spending was less than total output?
A)Product prices would rise,but wage rates would fall.
B)Product prices would fall,but wage rates would rise.
C)Nominal GDP would rise,but real GDP would remain constant.
D)Both product prices and wage rates would fall.
E)Both product prices and wage rates would rise.

Question

Quizplus · Accepted Answer

Neoclassical economists believe in the law of supply and demand, which states that when there is an excess supply of a good or service, prices will fall until the market clears. If total spending is less than total output, there will be an excess supply of goods and services, causing prices to fall. In turn, firms may reduce their production, causing unemployment and a decrease in wage rates. Therefore, both product prices and wage rates would fall.

According to Neoclassical Economists,what Would Happen If Total Spending Was