The new classical model implies that substitution of debt for tax financing
a. increases aggregate demand and exerts an expansionary effect on real output.
b. is highly effective against inflation.
c. reduces savings because it increases both the current and future tax liability of households.
d. leaves wealth, and therefore aggregate demand, unchanged because the debt will require higher future tax rates.
D
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Which of the following statements is true?
A) An individual's current spending increases when he lends money. B) An individual's current spending decreases when he borrows money. C) An economic agent lends to move his spending from the future to the present. D) An economic agent lends to earn a return.
Which of the following is consistent with classical growth theory?
A) Real GDP per person will increase because technological change induces investment. B) Real GDP per person will never permanently increase. C) Competition destroys innovation and decreases profit. D) As real GDP increases, there will be a decrease in the rate of population growth.
Refer to Figure 7-2. Marginal social benefit is represented by which curve?
A) Supply B) D2 C) D1 D) All of the above represent marginal social benefit.
Endogenous growth theory attempts to
A) replace the Solow model with a model in which money growth plays a key role. B) explain how societies can more easily reach the "Golden Rule." C) show how population growth reduces capital and output. D) explain why productivity changes.