Question

Question 91 pts

According to R-E or New Classical theory:

people don’t understand the effect of any government policy which is why they work.

people understand the effect of any government policy which is why they don’t work.

people understand the effect of any government policy which makes them work better.

people don’t understand the effect of any government policy which is why they don’t work.

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Question 101 pts

According to monetarists, the main cause of change in the level prices are changes in

investment spending.

the money supply.

government budget deficits

taxes

Answer 1

Question 91

New Classical Theory or Rational-Expectations Theory states that people, in general, have full information (including the impact of government policies) when they make their economic decisions.

Due to this, they take into account all the persumed impact of government policies in anticipated manner. This leads to ineffectiveness of government policies.

So, according to R-E or New Classical Theory, people understand the effect of any government policy which is why they do not work.

Hence, the correct answer is the option (2).

Question 101

Monetarists believe that it is the change in money supply that leads to change in the price level in the economy.

So, according to monetarists, the main cause of change in the level prices are changes in the money supply.

Hence, the correct answer is the option (2).