In the classical model,a temporary decrease in government spending would cause a decrease in
A)output, the real interest rate, real wages, and the price level.
B)employment, the real interest rate, real wages, and the price level.
C)output, employment, the real interest rate, and the price level.
D)output, employment, real wages, and the price level.

Question

Quizplus · Accepted Answer

In the classical model, a temporary decrease in government spending would cause a decrease in output and employment because the decrease in government spending would mean there is less demand for goods and services. This decrease in demand would then lead to a decrease in prices and wages in order to clear the market, leading to a decrease in the real interest rate as well.

In the Classical Model,a Temporary Decrease in Government Spending Would