In the classical model,if government tries to increase employment and output by increasing its own purchases,
A) it will achieve its goal and economic conditions will improve
B) it will not attain its objective unless it also decreases taxes
C) its actions will cause the interest rate to rise,which will choke off investment spending
D) firms will be motivated to increase their output,thereby creating even more jobs
E) saving will also increase,as more people are employed

Question

Quizplus · Accepted Answer

According to the classical model, an increase in government purchases without any corresponding decrease in taxes will cause interest rates to rise. This increase in interest rates will crowd out private investment spending and ultimately fail to increase employment and output in the economy.

In the Classical Model,if Government Tries to Increase Employment and Output