The classical model predicts that,in the short-run,a tax cut financed by an increase in the money supply would

Question

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The classical model assumes that prices are flexible and that the economy is always at full employment. Therefore, a tax cut financed by an increase in the money supply would increase the price level due to higher aggregate demand, but output would remain unchanged as it is determined by factors of production, not demand.

The Classical Model Predicts That,in the Short-Run,a Tax Cut Financed